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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).
Section 6662(d)(2)(B) provides that the amount of the
understatement shall be reduced by that portion of the
understatement that is attributable to the tax treatment of any
item by the taxpayer if there is or was substantial authority for
the treatment, or any item with respect to which the relevant
facts affecting the item's tax treatment are adequately disclosed
in the return or in a statement attached to the return, and there
is reasonable basis for such treatment.
The tax that was required to be shown on petitioners' 1997
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Last modified: May 25, 2011