Amaro A. Taibo - Page 13

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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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