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tax is substantial if it exceeds the greater of 10 percent of the
tax required to be shown on the return, or $5,000. Sec.
6662(d)(1) and (2). Respondent has the burden of production with
respect to the accuracy-related penalty. See sec. 7491(c).
An exception to the section 6662 penalty applies when the
taxpayer demonstrates: (1) There was reasonable cause for the
underpayment, and (2) the taxpayer acted in good faith with
respect to the underpayment. Sec. 6664(c).8 Whether the
taxpayer acted with reasonable cause and in good faith is
determined by the relevant facts and circumstances on a
case-by-case basis. See Stubblefield v. Commissioner, T.C. Memo.
1996-537; sec. 1.6664-4(b)(1), Income Tax Regs. “Circumstances
that may indicate reasonable cause and good faith include an
honest misunderstanding of fact or law that is reasonable in
light of all the facts and circumstances, including the
experience, knowledge and education of the taxpayer.” Sec.
1.6664-4(b)(1), Income Tax Regs. A taxpayer is not subject to
the addition to tax for negligence where the taxpayer makes
honest mistakes in complex matters, but the taxpayer must take
reasonable steps to determine the law and to comply with it.
Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992). The most
important factor is the extent of the taxpayer’s effort to assess
8 This section may provide relief even if a return position
does not satisfy the reasonable basis standard. Sec. 1.6662-
3(b)(3), Income Tax Regs.
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