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Under section 6662, a penalty may be applied in the amount
of 20 percent of an underpayment that is attributable to
negligence or disregard of rules or regulations, or any
substantial understatement of income tax. Sec. 6662(a) and (b).
Generally speaking, a substantial understatement of income tax
exists where the amount of tax required to be shown on the return
for the taxable year, less the amount of tax shown on the return
(the understatement), exceeds the greater of 10 percent of the
tax required to be shown on the return or $5,000. Section
6662(d)(1). An exception exists where a taxpayer shows that
there was reasonable cause for the understatement and that the
taxpayer acted in good faith with respect to the understatement.
In this case, petitioner’s Form 1040 states total tax due on
line 61 to be zero. The Form 1040 also claimed an overpayment in
the amount of $6,045. (A substantial amount of tax actually paid
is an amount withheld on $54,936 attributable to Denise from
DEFENSE FINANCE & ACTG SERV, as shown on a Form W-2, Wage and Tax
Statement, attached to the Form 1040.) Thus, any deficiency in
this case greater than $5,000 is a substantial understatement
that merits a penalty under section 6662(a). Petitioner has not
introduced evidence to support a finding of reasonable cause.
Petitioner blames defects in his income tax return on software
that he claims to have used in preparing the Form 1040 return.
Such a program is only an aid for preparation of a return and
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Last modified: May 25, 2011