DeForest and Rose M. Dorroh - Page 13

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          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.              





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