James G. and Linda C. Jaroff - Page 15

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          credit, or exclusion on a tax return which would seem to a                  
          reasonable and prudent person to be “too good to be true”.  Sec.            
          1.6662-3(b)(1)(ii), Income Tax Regs.  “Disregard” includes any              
          careless, reckless, or intentional disregard.  Sec. 6662(c).                
               A “substantial valuation misstatement” occurs if the value             
          of any property or adjusted basis of any property claimed on an             
          income tax return is 200 percent or more of the correct amount.             
          Sec. 6662(e)(1)(A); sec. 1.6662-5(e)(1), Income Tax Regs.  If the           
          valuation misstatement is 400 percent or more of the correct                
          amount, the misstatement is considered a “gross valuation                   
          [misstatement]”, and the 20-percent penalty is increased to 40              
          percent.  Sec. 6662(h).                                                     
               Only one accuracy-related penalty may be applied with                  
          respect to any given portion of an underpayment, even if that               
          portion is subject to more than one of the types of misconduct              
          described in section 6662.  Sec. 1.6662-2(c), Income Tax Regs.              
          In the notice of deficiency, respondent determined that                     
          petitioners are liable for accuracy-related penalties under                 
          section 6662(c) for negligence, section 6662(d) for a substantial           
          understatement of income tax, section 6662(e) for a substantial             
          valuation misstatement, and section 6662(h) for a gross valuation           
          misstatement.  Section 1.6662-2(c), Income Tax Regs., prevents              
          respondent from stacking these types of misconduct to impose a              
          penalty greater than the maximum penalty of 20 percent on any               

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Last modified: May 25, 2011