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or disregard of rules or regulations and a substantial
understatement of income tax. See sec. 6662(b)(1) and (2).
"Negligence" includes any failure to make a reasonable attempt to
comply with the provisions of the Internal Revenue Code,
including any failure to keep adequate books and records or to
substantiate items properly. See sec. 6662(c); sec. 1.6662-
3(b)(1), Income Tax Regs. A "substantial understatement"
includes an understatement of tax of $5,000 or more. See sec.
6662(d); sec. 1.6662-4(b), Income Tax Regs.
Section 6664(c)(1) provides that the penalty under section
6662(a) shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer's
position and that the taxpayer acted in good faith with respect
to that portion. The determination of whether a taxpayer acted
with reasonable cause and in good faith is made on a case-by-case
basis, taking into account all the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The most
important factor is the extent of the taxpayer's effort to assess
his proper tax liability for the year. Id.
Petitioner failed to keep adequate books and records
reflecting expenses of his ARA activities and to properly
substantiate other items reported on the return. See sec.
6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. There is an
understatement of tax greater than $5,000. The Court concludes
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