Dennis J. and Carol R. Kraus - Page 18

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               Section 6662 provides for an accuracy-related penalty equal            
          to 20 percent of the underpayment if the underpayment was due to            
          a taxpayer’s negligence.  See sec. 6662(a) and (b)(1).  A                   
          taxpayer is negligent when he or she fails “‘to do what a                   
          reasonable and ordinarily prudent person would do under the                 
          circumstances.’”  Korshin v. Commissioner, 91 F.3d 670, 672 (4th            
          Cir. 1996) (quoting Schrum v. Commissioner, 33 F.3d 426, 437 (4th           
          Cir. 1994), affg. in part, vacating and remanding in part T.C.              
          Memo. 1993-124), affg. T.C. Memo. 1995-46.                                  
               As pertinent here, “negligence” includes the failure to make           
          a reasonable attempt to comply with the provisions of the                   
          Internal Revenue Code and also includes any failure to keep                 
          adequate books and records or to substantiate items properly.               
          See sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.                     
               However, a taxpayer may avoid the application of the                   
          accuracy-related penalty by proving that he or she acted with               
          reasonable cause and in good faith.  See sec. 6664(c).  Whether a           
          taxpayer acted with reasonable cause and good faith is measured             
          by examining the relevant facts and circumstances, and most                 
          importantly, the extent to which he or she attempted to assess              
          the proper tax liability.  See Neely v. Commissioner, 85 T.C. 934           
          (1985); Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec.             
          1.6664-4(b)(1), Income Tax Regs.                                            

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