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revenue laws. Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax
Regs. The term “disregard” includes any careless, reckless, or
intentional disregard. Sec. 6662(c); sec. 1.6662-3(b)(2), Income
Tax Regs.
An understatement of income tax is “substantial” if it
exceeds the greater of 10 percent of the tax required to be shown
on the return, or $5,000. Sec. 6662(d)(1)(A). An
“understatement” is defined as the excess of the tax required to
be shown on the return over the tax actually shown on the return.
Sec. 6662(d)(2)(A).
Whether the accuracy-related penalty is applied because of
negligence or disregard of rules or regulations, or a substantial
understatement of tax, section 6664 provides an exception to
imposition of the accuracy-related penalty if the taxpayer
establishes that there was reasonable cause for the
understatement and that the taxpayer acted in good faith with
respect to that portion. Sec. 6664(c)(1); sec. 1.6664-4(b),
Income Tax Regs.; see United States v. Boyle, 469 U.S. 241, 242
(1985). Although not defined in the Code, “reasonable cause” is
viewed in the applicable regulations as the “exercise of ordinary
business care and prudence”. Sec. 301.6651-1(c)(1), Proced. &
Admin. Regs.; see United States v. Boyle, supra at 246. The
determination of whether a taxpayer acted with reasonable cause
and in good faith is made on a case-by-case basis, taking into
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Last modified: May 25, 2011