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Section 6662(a) imposes a penalty of 20 percent of the
portion of the underpayment which is attributable to, inter alia,
negligence or disregard of rules or regulations. Sec. 6662(b)(1).
Negligence is the "'lack of due care or failure to do what a
reasonable and ordinarily prudent person would do under the
circumstances.'" Neely v. Commissioner, 85 T.C. 934, 947 (1985)
(quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir.
1967)). The term "disregard" includes any careless, reckless, or
intentional disregard. Sec. 6662(c).
No penalty shall be imposed if it is shown that there was
reasonable cause for the underpayment and the taxpayer acted in
good faith with respect to the underpayment. Sec. 6664(c). 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 pertinent facts and circumstances. The most important
factor is the extent of the taxpayer's effort to assess the
taxpayer's proper tax liability. "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.; see
Reynolds v. Commissioner, 296 F.3d 607, 618 (7th Cir. 2002), affg.
T.C. Memo. 2000-20.
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Last modified: May 25, 2011