Leona Payton - Page 11

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          one-half of the taxable year; (2) the individual is between the             
          ages of 25 and 65 before the close of the taxable year; and (3)             
          the individual is not an allowable dependent claimed by another             
          taxpayer in the same calendar year.  Petitioner has met all of              
          the above requirements.  However, petitioner is subject to the              
          limitations of the earned income credit under section 32(a)(2).             
          Because petitioner’s income was greater than $9,230 in 1995,                
          $9,500 in 1996, and $9,770 in 1997, petitioner is not allowed to            
          claim the credits.  See sec. 32(a)(2).                                      
          Accuracy-Related Penalty                                                    
               The last issue for decision is whether petitioner is liable            
          for accuracy-related penalties pursuant to section 6662(a).                 
          Section 6662(a) imposes a penalty of 20 percent of the portion of           
          the underpayment that is attributable to negligence or disregard            
          of rules or regulations.  See 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)(quoting Marcello             
          v. Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. 43 T.C.           
          168 (1964) and T.C. Memo. 1964-299).  Negligence also includes              
          any failure by the taxpayer to keep adequate books and records or           
          to substantiate items properly.  See sec. 1.6662-3(b)(1), Income            
          Tax Regs.  The term “disregard” includes any careless, reckless,            
          or intentional disregard.  Sec. 6662(c).  No penalty shall be               

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Last modified: May 25, 2011