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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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Last modified: May 25, 2011