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rules or regulations is careless if the taxpayer does not
exercise reasonable diligence to determine the correctness of a
return position that is contrary to the rule or regulation. Sec.
1.6662-3(b)(2), Income Tax Regs. Disregard of rules or
regulations is reckless if the taxpayer makes little or no effort
to determine whether a rule or regulation exists. Id. Disregard
of rules or regulations is intentional if the taxpayer knows of
the rule or regulation that is disregarded. Id.
Section 6664(c)(1) provides, in pertinent part, that the
section 6662(a) penalty shall not be imposed with respect to any
portion of an underpayment if a taxpayer shows that there was a
reasonable cause for such portion and that the taxpayer acted in
good faith with respect to such portion. Reasonable cause and
good faith may be indicated by an honest misunderstanding of fact
or law that is reasonable in light of the experience, knowledge,
and education of the taxpayer. Sec. 1.6664-4(b), Income Tax
Regs.
We have concluded that Christopher may increase his basis in
Cox Tomato by $148,000 to reflect the money he transferred to Cox
Tomato from loan 91850.11 Gregory, however, did not show that he
is entitled to increase his adjusted basis in Cox Tomato. With
respect to other adjustments proposed in the notices of
11Christopher may still have an underpayment because of his
concessions regarding other adjustments.
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