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6662(d)(1)(A).9 Tax is not understated to the extent that the
treatment of the item related thereto is based on substantial
authority or is adequately disclosed in the return or in a
statement attached to the return, and there is a reasonable basis
for the tax treatment of such item by the taxpayer. Sec.
6662(d)(2)(B).
Moreover, the accuracy-related penalty does not apply with
respect to any portion of an underpayment if it is shown that
there was reasonable cause for the underpayment and the taxpayer
acted in good faith with respect to the underpayment. Sec.
6664(c)(1). 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
the taxpayer’s proper tax liability for such year. Id.
Based on petitioner’s own admitted concessions of unreported
income, a prima facie case exists for imposition of the penalty.
Petitioner appears to contend that he did in fact report his
income tax on the revised Form 1040 after he did not receive a
response from respondent concerning the tax characterization of
9 For purposes of “the amount shown as the tax by the
taxpayer on his return”, the revised Form 1040 is not a
“qualified amended return” in determining whether petitioner
understated his income tax. Sec. 1.6664-2(a), (c), Income Tax
Regs.
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Last modified: May 25, 2011