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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