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Section 6664(c)(1) provides that the penalty under section
6662(a) shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer's
position and that the taxpayer acted in good faith with respect
to that portion. The determination of whether a taxpayer acted
with reasonable cause and in good faith is made on a case-by-case
basis, taking into account all the pertinent facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs. The
most important factor is the extent of the taxpayer's effort to
assess his proper tax liability for the year. See id.
Petitioner failed to keep adequate books and records reflecting
expenses of his Daybreak activity and to properly substantiate
other items reported on his return. See sec. 6662(c); sec.
1.6662-3(b)(1), Income Tax Regs. There is an understatement of
tax greater than $5,000. The Court concludes that respondent has
produced sufficient evidence to show that the section 6662
accuracy-related penalty is appropriate. Nothing in the record
indicates petitioner acted with reasonable cause and in good
faith. The Court holds that the record supports respondent's
determination that petitioner is liable for the accuracy-related
penalty.
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Last modified: May 25, 2011