Leona Payton - Page 12

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          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.  See sec. 6664(c).  The determination of                  
          whether a taxpayer acted with reasonable cause and good faith               
          within the meaning of section 6662(c) 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.                   
               At trial, petitioner established that she acted in good                
          faith with respect to the 1995, 1996, and 1997 claimed dependency           
          exemption deductions.  We find petitioner’s testimony to be                 
          credible as to her support of certain individuals during                    
          difficult periods in their lives.  Petitioner’s lack of                     
          compliance was not based upon bad faith, but rather on a                    
          misunderstanding of the requirements of the dependency exemption            
          deduction.  We also find petitioner credible in her intentions to           
          comply with complex Federal income tax requirements by seeking              
          out assistance from the Internal Revenue Service.  On the basis             
          of the record, we hold that petitioner is not liable for                    
          accuracy-related penalties under section 6662(a) for the years in           
               Reviewed and adopted as the report of the Small Tax Case               
                                                  Decision will be entered            
                                             under Rule 155.                          

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Last modified: May 25, 2011