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The trial in this case was held on September 9, 2003. At
the conclusion of the trial, the Court ordered respondent to file
a brief and then allowed petitioner until January 15, 2004, to
file an answering brief. Respondent timely filed a brief;
however, petitioner failed to file an answering brief.
OPINION
The issue for decision is whether petitioner is liable for
the accuracy-related penalty on the underpayment of tax
attributable to the disallowed Schedule C loss. Petitioner’s
position is that he is not liable for the penalty because he
relied on the advice of his tax return preparer.
Section 6662(a) imposes a penalty of 20 percent of the
portion of the underpayment of tax attributable to the taxpayer’s
negligence, disregard of rules or regulations, or substantial
understatement of income tax. Sec. 6662(a), (b)(1) and (2). An
understatement is substantial if it exceeds the greater of 10
percent of the tax required to be shown on the return for the
taxable year, or $5,000. Sec. 6662(d)(1) and (2).
The accuracy-related penalty does not apply to any part of
an underpayment of tax if it is shown that there was reasonable
cause for and that the taxpayer acted in good faith with respect
to that part. Sec. 6664(c)(1). The determination of whether a
taxpayer acted in good faith is made on a case-by-case basis,
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Last modified: May 25, 2011