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reasonable attempt to comply with the provisions of the Internal
Revenue Code, including any failure to keep adequate books and
records or to substantiate items properly. Sec. 6662(c); sec.
1.6662-3(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. 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. Id.
Petitioners failed to keep adequate books and records
reflecting the income and expenses of Mr. Brayshaw’s businesses
and failed to properly substantiate the majority of the numerous
and varied items reported on their return. See sec. 6662(c);
sec. 1.6662-3(b)(1), Income Tax Regs. Furthermore, petitioners’
effort to assess their proper tax liability falls short of what
would be consistent with reasonable cause and good faith. See
sec. 1.6664-4(b)(1), Income Tax Regs. We hold that the record
supports respondent’s determination of negligence in this case.
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