James G. and Linda C. Jaroff - Page 14

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          available evidence, and petitioners’ refusal to testify, the                
          record in this case clearly shows that petitioners’ failure to              
          file their income tax returns on time was not due to reasonable             
               Respondent’s determinations that petitioners are liable for            
          additions to tax for 1994 and 1995 are sustained.                           
          B.  Accuracy-Related Penalties                                              
               Section 6662(a) provides that a taxpayer may be liable for a           
          penalty of 20 percent of the portion of an underpayment of tax              
          attributable to (1) a substantial understatement of tax, (2)                
          negligence or disregard of rules or regulations, or (3) any                 
          substantial valuation misstatement.  Sec. 6662(a) and (b)(1),               
          (2), and (3).  The accuracy-related penalty does not apply to any           
          portion of an underpayment of tax if it is shown that there was             
          reasonable cause for such portion and that the taxpayer acted in            
          good faith.  Sec. 6664(c)(1).                                               
               An “understatement of 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).                                 
               “Negligence” is defined as any failure to make a reasonable            
          attempt to comply with the provisions of the Internal Revenue               
          Code.  Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.                  
          Generally, a taxpayer is negligent if he or she fails to make a             
          reasonable attempt to ascertain the correctness of a deduction,             

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