John William Barck & Janie R. Barck - Page 12




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               The final issue for decision is whether petitioners are                
          liable for the accuracy-related penalties under section 6662(a).            
               Section 6662(a) imposes a 20-percent penalty on the portion            
          of an underpayment attributable to any one of various factors,              
          including (1) negligence or disregard of rules or regulations;              
          and (2) any substantial understatement of income tax.  See sec.             
          6662(b)(1) and (2).  Respondent determined that petitioners are             
          liable, with respect to each year in issue, for an accuracy-                
          related penalty due to one or both of these factors for an                  
          underpayment equal to the total amount of the deficiency.                   
               “Negligence” includes any failure to make a reasonable                 
          attempt to comply with the provisions of the Internal Revenue               
          Code, see sec. 6662(c), including any failure to keep adequate              
          books and records or to substantiate items properly, see sec.               
          l.6662-3(b)(1), Income Tax Regs.  “Disregard” includes any                  
          careless, reckless, or intentional disregard.  See sec. 6662(c).            
               A “substantial understatement” exists where the amount of              
          the understatement exceeds the greater of 10 percent of the tax             
          required to be shown on the return or $5,000.  See sec.                     
          6662(d)(1)(A).  For purposes of this computation, the amount of             
          the understatement is reduced to the extent attributable to an              
          item:  (1) If there exists or existed substantial authority for             
          the taxpayer’s treatment of the item; or (2) if the relevant                
          facts affecting the treatment of the item are adequately                    







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