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to any portion of an underpayment in taxes, there shall be added
to the tax an amount equal to 20 percent of the portion of the
underpayment to which section 6662 applies. Under section
6664(c), however, no penalty shall be imposed under section
6662(a) with respect to any portion of an underpayment if it is
shown that there was a reasonable cause for the portion, and that
the taxpayer acted in good faith with respect to the portion of
the underpayment.
Under section 6662(b)(2), there is a substantial
understatement of income tax if the amount of the understatement
exceeds the greater of (1) 10 percent of the tax required to be
shown on the return, or (2) $5,000. Sec. 6662(d)(1)(A). For
purposes of section 6662(d)(1), "understatement" is defined as
the excess of tax required to be shown on the return over the
amount of tax that is shown on the return, reduced by any
rebates. Sec. 6662(d)(2)(A).
6(...continued)
underpayment of tax may not exceed 20 percent of the
underpayment, notwithstanding that the portion is attributable to
more than one of the types of misconduct described in sec.
6662(a). Sec. 1.6662-2(c), Income Tax Regs. Therefore, although
the underpayment of tax required to be shown on petitioners' 1997
income tax return may have been attributable to both a
substantial understatement of income tax and negligence, the
maximum accuracy-related penalty petitioners would be liable for
is 20 percent. Thus, the Court considers the sec. 6662(a)
penalty only as to the substantial understatement allegation and
not as to the negligence or disregard of rules or regulations
allegation.
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Last modified: May 25, 2011