- 11 -
Section 6662(a) imposes a penalty equal to 20 percent of the
portion of an underpayment of tax attributable to a taxpayer’s
negligence, disregard of rules or regulations, or substantial
understatement of income tax. Sec. 6662(a), (b)(1) and (2). An
understatement is “substantial” if it exceeds the greater of 10
percent of the tax required to be shown on the return for the
taxable year, or $5,000. Sec. 6662(d)(1) and (2).
Respondent concedes that he bears the burden of production
under section 7491(c) with respect to the accuracy-related
penalty. Petitioner reported tax liability of $1,020.01 on his
1998 return. We have sustained respondent’s determination that
petitioner has a deficiency of $10,000 for 1998. Thus, there was
an understatement of tax because the deficiency exceeds the
greater of 10 percent of the tax required to be shown on
petitioner’s 1998 return, or $5,000.
The accuracy-related penalty does not apply to any part of
an underpayment if the taxpayer shows that there was reasonable
cause for that part of the underpayment and that he acted in good
faith in view of the facts and circumstances. Sec. 6664(c). The
determination of whether a taxpayer acted with reasonable cause
and 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 taxpayer bears the burden of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011