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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), Income
Tax Regs., "Circumstances that may indicate reasonable cause and
good faith include an honest misunderstanding of fact or law that
is reasonable in light of all of 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 addition
to tax 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.
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