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does not constitute a specified possession for purposes of
section 931. The Court of Appeals held that section 931 applies
to income earned on Johnston Island, noting its agreement with
the decision of the Court of Appeals for the Ninth Circuit in
Farrell v. United States, 313 F.3d at 1219, and that the wages
earned by U.S. citizens on Johnston Island constituted taxable
income. In Umbach v. Commissioner, supra, with regard to the
taxpayer’s treatment of his Johnston Island wages as nontaxable
income, no penalty was asserted by respondent and none was
imposed by the Court of Appeals for the Tenth Circuit.
Discussion
Under section 6662, an accuracy-related penalty is to be
added to the portion of an underpayment of tax attributable to
negligence, to a disregard of rules or regulations, or to a
substantial understatement of income tax.
Generally, for purposes of the accuracy-related penalty,
negligence includes a failure to make a reasonable attempt to
comply with the tax laws. Sec. 6662(c). Negligence is indicated
where a taxpayer fails to make a reasonable attempt to ascertain
the correctness of the claimed tax treatment of an item, does not
have a reasonable basis for such tax treatment, and does not act
with reasonable cause and in good faith with respect to such tax
treatment. Secs. 1.6662-3(b)(1)(ii), 1.6662-3(b)(3), 1.6664-
4(a), Income Tax Regs.
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