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Whether applied based on a substantial understatement of tax
or negligence or disregard of the rules or regulations, the
accuracy-related penalty is not imposed with respect to any
portion of the underpayment as to which the taxpayer acted with
reasonable cause and in good faith. See sec. 6664(c)(1). The
decision as to whether the taxpayer acted with reasonable cause
and in good faith depends upon all the pertinent facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.; see
also Hickman v. Commissioner, T.C. Memo. 1997-545. Relevant
factors include the taxpayer’s efforts to assess his proper tax
liability, including the taxpayer’s reasonable and good-faith
reliance on the advice of a professional such as an accountant.
See Jorgenson v. Commissioner, T.C. Memo. 2000-38; sec. 1.6664-
4(b)(1), Income Tax Regs.
Petitioner cites his intent to comply with section 72(p) for
the purpose of showing that he acted with reasonable cause and
good faith in not reporting the loan as a taxable distribution on
his 1994 income tax return. Petitioner hired a qualified plan
administrator on whose advice he relied at the time of entering
into the loan. The minutes of the board meeting that were
prepared contemporaneously with the loan indicate that petitioner
relied upon information from “Annie in Edberg’s office” for the
proposition that he could amortize the loan over 15 years as long
as it was repaid with a balloon payment within 5 years.
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Last modified: May 25, 2011