Frank Franklin - Page 9

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               Under section 6662(a), there shall be added to the tax an              
          accuracy-related penalty of 20 percent of the portion of any                
          underpayment to which section 6662(a) is applicable.                        
               Section 6662(b)(1) provides that section 6662 shall apply to           
          any underpayment attributable to negligence or disregard of rules           
          or regulations.  "Negligence" includes any failure to make a                
          reasonable attempt to comply with the provisions of the Internal            
          Revenue laws, and the term "disregard" includes any careless,               
          reckless, or intentional disregard of rules or regulations.  Sec.           
          6662(c).  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.  However,              
          under section 6664(c), the penalty is not applicable if there was           
          reasonable cause for the underpayment, and the taxpayer acted in            
          good faith with respect thereto.5                                           
               With respect to the two unreported income items, the State             
          income tax refund and the unemployment compensation benefits,               
          petitioner readily admitted at trial that he knew those two items           
          constituted income and offered no explanation why these income              
          payments were not reported on his return.  Respondent is                    

               5    Even if sec. 7491 were applicable in this case, and the           
          burden of proof would be on respondent, under Higbee v.                     
          Commissioner, 116 T.C. 438, 446-447 (2001), with respect to                 
          penalties, the burden of proof is on the taxpayer under sec.                
          7491(c) with respect to reasonable cause, substantial authority,            
          or similar provisions.                                                      

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