- 6 -
where * * * a taxpayer fails to make a reasonable attempt to
ascertain the correctness of a deduction * * * on a return which
would seem to a reasonable and prudent person to be 'too good to
be true' under the circumstances."
An exception applies when the taxpayer demonstrates (1)
there was reasonable cause for the underpayment, and (2) the
taxpayer acted in good faith with respect to the underpayment.
Sec. 6664(c). Whether the taxpayer acted with reasonable cause
and in good faith is determined by the relevant facts and
circumstances. The most important factor is the extent of the
taxpayer's effort to assess the proper tax liability.
Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec. 1.6664-
4(b)(1), Income Tax Regs. Under section 1.6664-4(b)(1),
"Circumstances that may indicate reasonable cause and good faith
include an honest misunderstanding of fact or law that is
reasonable in light of all the facts and circumstances, including
the experience, knowledge and education of the taxpayer."
Moreover, a taxpayer is generally charged with knowledge of the
law. Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992).
Although a taxpayer is not subject to the penalty for negligence
where the taxpayer makes honest mistakes in complex matters, the
taxpayer must take reasonable steps to determine the law and to
comply with it. Id.
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011