- 12 -
understatement exceeds the greater of $5,000 or 10 percent of the
amount of tax required to be shown on a return. Sec.
6662(d)(1)(A).
Whether applied because of a substantial understatement of
tax or negligence or disregard of rules or regulations, the
accuracy-related penalty is not imposed with respect to any
portion of the underpayment as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1). The
decision as to whether the taxpayer acted with reasonable cause
and in good faith depends upon all the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
Respondent determined tax deficiencies of $17,091 and
$17,867 for 1997 and 1998, respectively. Petitioners conceded at
trial that respondent’s adjustments to petitioners’ tax liability
in the notice of deficiency were correct, with the exception of
self-employment tax. We have found for respondent on the issues
of petitioners’ self-employment tax liability and the
deductibility of losses from their horse activity. Respondent
has met his burden of production. Petitioners did not present
any evidence indicating reasonable cause or substantial
authority. See secs. 6662, 6664. Accordingly, we sustain
respondent’s penalty determination.
B. Addition to Tax
Respondent determined that petitioners are liable for an
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011