Kevin P. Osborne - Page 7

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          the latter underlying adjustment, but he disputes the imposition            
          of the penalties.                                                           
               Section 6662(a) imposes a 20-percent penalty on the portion            
          of an underpayment attributable to any one of various factors,              
          one of which is negligence or disregard of rules or regulations.            
          Sec. 6662(b)(1).  “Negligence” includes any failure to make a               
          reasonable attempt to comply with the provisions of the Internal            
          Revenue Code, including any failure to keep adequate books and              
          records or to substantiate items properly.  Sec. 6662(c); sec.              
          1.6662-3(b)(1), Income Tax Regs.  Section 6664(c)(1) provides               
          that the penalty under section 6662(a) shall not apply to any               
          portion of an underpayment if it is shown that there was                    
          reasonable cause for the taxpayer’s position and that the                   
          taxpayer acted in good faith with respect to that portion.  The             
          determination of whether a taxpayer acted with reasonable cause             
          and in 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 most important factor is              
          the extent of the taxpayer’s effort to assess his proper tax                
          liability for the year.  Id.  Finally, a taxpayer may avoid the             
          accuracy-related penalty under section 6662(a) by showing                   
          reliance on the advice of a professional which was reasonable and           
          in good faith.  Sec. 1.6664-4(b)(1), Income Tax Regs.                       

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