Ray W. and Marilyn S. Sowards - Page 37

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          Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. on this              
          issue 43 T.C. 168 (1964) and T.C. Memo. 1964-299), affd. 904 F.2d           
          1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991).  Pursuant to the           
          regulations, “‘Neglience’ also includes any failure by the                  
          taxpayer to keep adequate books and records or to substantiate              
          items properly.”  Sec. 1.6662-3(b)(1), Income Tax Regs.                     
               Section 6664(c) provides an exception to the penalty imposed           
          under section 6662(a).  “No penalty shall be imposed under this             
          part with respect to any portion of an underpayment if it is                
          shown that there was a reasonable cause for such portion and that           
          the taxpayer acted in good faith with respect to such portion.”             
          Sec. 6664(c)(1).  The determination of whether the taxpayer acted           
          with reasonable cause and in good faith is made on a case-by-case           
          basis, contemplating all of the relevant facts and circumstances.           
          Sec. 1.6664-4(b)(1), Income Tax Regs.                                       
               Given the record before us, we sustain the negligence                  
          penalties.  Mr. Sowards was not a credible witness; he offered              
          inconsistent and implausible explanations to respondent’s                   
          employees and this Court.  He intentionally disregarded the tax             
          laws by attempting to surreptitiously characterize payments by              
          STL to WPA as nontaxable loans.  The failure to keep books and              
          substantiate claimed deductions justifies the imposition of the             
          penalties.  See sec. 1.6662-3(b)(1), Income Tax Regs.                       








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