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G. Whether Petitioner Is Liable for the Accuracy-Related
Penalty Under Section 6662
1. Adequate Disclosure and Reasonable Basis
Petitioner contends that he is not liable for the accuracy-
related penalty under section 6662 for negligence and substantial
understatement of income tax because he adequately disclosed his
positions relating to the lottery winnings and net operating loss
on a statement attached to his return and had a reasonable basis
for those positions. Sec. 6662(d)(2)(B)(ii); sec. 1.6662-3(c),
Income Tax Regs. We agree to the extent described below.
Taxpayers are liable for a penalty under section 6662 equal
to 20 percent of the part of the underpayment attributable to
negligence or disregard of rules or regulations or to any
substantial understatement of income tax. Sec. 6662(a) and
(b)(1) and (2). However, a taxpayer is not liable for the
accuracy-related penalty under section 6662(a) and (b)(1) if
(1) the taxpayer adequately discloses the relevant facts
affecting the item on his or her return or in a statement
attached to the taxpayer’s return and has a reasonable basis for
that treatment, or (2) there was reasonable cause for the
underpayment and the taxpayer acted in good faith. Secs.
6662(d)(2)(B)(ii), 6664(c)(1); secs. 1.6662-3(c), 1.6664-4(a),
Income Tax Regs.
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