James R. and Janet M. Landrum - Page 22

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          3.  Accuracy-Related Penalty                                                
               Section 6662(a) imposes an accuracy-related penalty of 20              
          percent of the portion of the underpayment which is attributable            
          to negligence or disregard of rules or regulations.  Sec.                   
          6662(b)(1).  Negligence is the lack of due care or failure to do            
          what a reasonable and ordinarily prudent person would do under              
          the circumstances.  Neely v. Commissioner, 85 T.C. 934, 947                 
          (1985).  The term “disregard” includes any careless, reckless, or           
          intentional disregard.  Sec. 6662(c).  No penalty shall be                  
          imposed if it is shown that there was reasonable cause for the              
          underpayment and the taxpayer acted in good faith with respect to           
          the underpayment.  Sec. 6664(c).                                            
               As to the penalty under section 6662(a), under RRA 1998,               
          respondent has the burden of production, sec. 7491(c), but not              
          the burden of proof.  The requirements of RRA 1998 as to penalty            
          provisions are discussed in detail in Higbee v. Commissioner, 116           
          T.C.     (2001), and there is no reason to repeat that discussion           
               Respondent has shown that petitioners have failed to keep              
          adequate books and records and that such records as they have               
          kept are inaccurate or exaggerated.  Respondent also has                    
          demonstrated that petitioners’ claim that they were engaged in              
          the Amway activity in 1996-1997 with a bona fide profit objective           
          is erroneous and inappropriate in view of petitioners’ long and             

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