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in the tax return, sec. 6662(d)(2)(A), and is “substantial” in the
case of an individual if the understatement exceeds the greater of
10 percent of the tax required to be shown or $5,000, sec.
6662(d)(1)(A).
The penalty under section 6662(a) does not apply to any
portion of an understatement of tax 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. Sec. 6664(c)(1).
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/her proper tax
liability for the year. Id.
Reasonable cause requires that the taxpayer exercise ordinary
business care and prudence as to the disputed item. United States
v. Boyle, 469 U.S. 241 (1985); see also Neonatology Associates,
P.A. v. Commissioner, 115 T.C. 43, 98 (2000), affd. 299 F.3d 221
(3d Cir. 2002). The good faith reliance on the advice of an
independent, competent professional as to the tax treatment of an
item may meet this requirement. United States v. Boyle, supra;
sec. 1.6664-4(b), Income Tax Regs. Whether a taxpayer reasonably
relies on advice of a professional depends on the facts and
circumstances of the case and the law applicable thereto. Sec.
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