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petitioners’ failure to report a total of $1,193 of dividend
income,3 because such underpayment was due to negligence or
disregard of rules or regulations.
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment attributable to any one of various factors,
one of which is negligence or disregard of rules or regulations.
See sec. 6662(b)(1). “Negligence” includes any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code and also includes any failure to keep adequate books
and records or to substantiate items properly. See sec. 6662(c);
sec. l.6662-3(b)(1), Income Tax Regs. Section 6664(c)(1)
provides that the penalty under section 6662(a) shall not apply
to any portion of an underpayment if it is shown that there was
reasonable cause for the taxpayer’s position and that the
taxpayer acted in good faith with respect to that portion. 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 the pertinent facts and circumstances. See sec.
1.6664-4(b)(1), Income Tax Regs. The most important factor is
the extent of the taxpayer’s effort to assess his proper tax
liability for the year. See id.
3Respondent concedes the portion of the penalty attributable
to $421 of this amount.
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Last modified: May 25, 2011