- 12 - return, based on respondent's adjustments, was $20,761. Petitioners' return showed a tax of $4,939. Petitioners understated their tax by $15,822, which clearly exceeds the greater of $5,000 or 10 percent of the tax required to be shown on the return (i.e., $2,076.10). It follows that petitioners' understatement of tax was substantial for purposes of section 6662(d)(1)(A).6 The determination of whether a taxpayer acted with reasonable cause and in good faith depends upon the facts and circumstances of each particular case. Sec. 1.6664-4(b)(1), Income Tax Regs. Relevant factors include the taxpayer's efforts to assess his or her proper tax liability, the knowledge and experience of the taxpayer, and reliance on the advice of a professional, such as an accountant. Drummond v. Commissioner, T.C. Memo. 1997-71. The most important factor is the extent of the taxpayer's effort to determine the taxpayer's proper tax liability. Sec. 1.6664-4(b)(1), Income Tax Regs. An honest misunderstanding of fact or law that is reasonable in light of the experience, knowledge, and education of the taxpayer may indicate reasonable cause and good faith. Remy v. Commissioner, 6 The Court recognizes that, because of respondent's concession that $5,000 of the $60,000 settlement is excludable from gross income and petitioners' concession of $344 in unreported interest income, the exact amount of the understatement will be determined in the Rule 155 computation.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011