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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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Last modified: May 25, 2011