-284-
D. Reasonable Cause
No penalty shall be imposed under section 6662 with respect
to any portion of an underpayment if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted in
good faith with respect to such portion. Sec. 6664(c)(1).198 The
determination whether a taxpayer acted with reasonable cause and
in good faith is made on a case-by-case basis, taking into
account all pertinent facts and circumstances. Sec. 1.6664-
4(b)(1), Income Tax Regs. Generally, the most important factor
is the extent of the taxpayer’s effort to assess his proper tax
liability. Id. Circumstances that may indicate reasonable cause
and good faith include an honest misunderstanding of fact or law
that is reasonable in light of all of the facts and
circumstances, including the experience, knowledge, and education
of the taxpayer.199 Id.
198 The determination of whether a taxpayer acted with
reasonable cause and in good faith with respect to an
underpayment that is related to an item reflected on the return
of a pass-through entity is made on the basis of all pertinent
facts and circumstances, including the taxpayer’s own actions, as
well as the actions of the pass-through entity. Sec. 1.6664-
4(d), Income Tax Regs.
199 Petitioner bears the burden of production and burden of
proof with respect to the reasonable cause exception. Higbee v.
Commissioner, 116 T.C. at 446-447; H. Conf. Rept. 105-599, supra
at 241, 1998-3 C.B. at 995.
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