- 13 - Disregard of rules or regulations is careless if the taxpayer does not exercise reasonable diligence to determine the correctness of a return position that is contrary to the rule or regulation. Sec. 1.6662-3(b)(2), Income Tax Regs. Negligence also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly. See sec. 1.6662- 3(b)(1), Income Tax Regs. During the examination of petitioners’ 1998 and 1999 income tax returns and at the trial, petitioners did not produce any credible evidence to support the disputed NOL carryforward deductions and charitable contribution deductions. Mr. Beery did not testify that petitioners maintained adequate records or that they ever had records to substantiate the disputed deductions. Moreover, petitioners failed to present any colorable legal argument in support of their position that they were entitled to deduct the asserted 1975 NOL carryforwards on their 1998 and 1999 returns. Section 6662(a) and (b)(2) imposes a penalty equal to 20 percent of the portion of an underpayment attributable to any substantial understatement of tax. A substantial understatement occurs when the amount of the understatement exceeds the greater of 10 percent of the amount of tax required to be shown on the return or $5,000. See sec. 6662(d)(1). The amount of an understatement on which the penalty is imposed will be reduced byPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011