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and 1997. Accordingly, petitioners are not liable for the
section 6651(a)(1) addition to tax for 1996 and 1997.
C. Section 6662
Pursuant to section 6662(a), a taxpayer may be liable for a
penalty of 20 percent on the portion of an underpayment of tax
(1) attributable to a substantial understatement of tax or (2)
due to negligence or disregard of rules or regulations. Sec.
6662(b). Whether applied because of a substantial understatement
of tax or negligence or disregard of rules or regulations, the
accuracy-related penalty is not imposed with respect to any
portion of the underpayment as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1). The
decision as to whether the taxpayer acted with reasonable cause
and in good faith depends upon all the pertinent facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
Negligence includes any failure to make a reasonable attempt
to comply with the Internal Revenue Code. Sec. 6662(c).
Respondent established that petitioners failed to maintain
records as required by section 6001 and failed to substantiate
items properly. Sec. 1.6662-3(b)(1), Income Tax Regs.
Accordingly, respondent met his burden of production for the
section 6662 penalty for the years in issue.
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