Dennis and Dorinda J. Jelle - Page 15




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          $5,000.  For purposes of this computation, the amount of the                
          understatement is reduced to the extent attributable to an item:            
          (1) If there existed substantial authority for the taxpayer’s               
          treatment of the item, or (2) if the relevant facts affecting the           
          treatment of the item were adequately disclosed on the taxpayer’s           
          return or an attached statement, and there was a reasonable basis           
          for the taxpayer’s treatment of the item.  See sec.                         
          6662(d)(2)(B).                                                              
               An exception to the section 6662(a) penalty is set forth in            
          section 6664(c)(1) and reads:  “No penalty shall be imposed under           
          this part with respect to any portion of an underpayment if it is           
          shown that there was a reasonable cause for such portion and that           
          the taxpayer acted in good faith with respect to such portion.”             
          The taxpayer bears the burden of establishing that this                     
          reasonable cause exception is applicable, as respondent’s                   
          determination of an accuracy-related penalty is presumed correct.           
          See Rule 142(a).                                                            
               Regulations interpreting section 6664(c) state:                        
                    The determination of whether a taxpayer acted with                
               reasonable cause and in good faith is made on a case-                  
               by-case basis, taking into account all pertinent facts                 
               and circumstances. * * * Generally, the most important                 
               factor is the extent of the taxpayer’s effort to assess                
               the taxpayer’s proper tax liability. * * * [Sec.                       
               1.6664-4(b)(1), Income Tax Regs.]                                      
               Applying these principles to the matter at hand, we are                
          constrained to rule that petitioners have failed to meet their              






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