Hoora Rahimi and Isaac William Hammond - Page 12

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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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