Royal and Shelly Spence Wiley - Page 11




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          taxpayer's negligence or disregard of rules or regulations.  Sec.           
          6662(a) and (b)(1).  Negligence consists of any failure to make a           
          reasonable attempt to comply with the provisions of the Internal            
          Revenue Code, and disregard consists of any careless, reckless,             
          or intentional disregard.  Sec. 6662(c).  The courts have refined           
          the Code definition of negligence as a lack of due care or                  
          failure to do what a reasonable and prudent person would do under           
          similar circumstances.  Allen v. Commissioner, 925 F.2d 348, 353            
          (9th Cir. 1991), affg. 92 T.C. 1 (1989).  Section 1.6662-3(b)(1),           
          Income Tax Regs., provides that "Negligence is strongly indicated           
          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                           





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