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B. Accuracy-Related Penalties
Respondent determined that Sparkman is liable for section
6662(a) accuracy-related penalties for all years at issue.
Section 6662(a) imposes a 20-percent accuracy-related penalty on
any portion of a tax underpayment that is attributable to, among
other things, negligence or disregard of rules and regulations.
Negligence includes a failure to make a reasonable attempt to
comply with the tax code, to exercise ordinary care in preparing a
tax return, or to substantiate items properly on a tax return.
Sec. 1.6662-3(b)(1), Income Tax Regs.
The evidence shows that Sparkman failed to report income from
his Mercury Solar business (specifically, $113,354 of income from
HECO rebate payments), which he purported to transfer to a sham
trust, and claimed losses from HEH that he has failed to
substantiate. We find that the resulting understatements of
Sparkman’s income for all years at issue are attributable to
Sparkman’s negligence in failing to ascertain his correct income
tax liability and in failing to substantiate claimed deductions.
Accordingly, respondent has met his burden of production pursuant
to section 7491(c).
The section 6662 accuracy-related penalty is inapplicable to
the extent the taxpayer has reasonable cause and acted in good
faith. Sec. 6664(c)(1). This determination is made considering
all relevant 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 the taxpayer’s proper tax
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