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difference between $159,008 and zero exceeds both 10 percent of
$159,008, or $1,590, and $5,000. Accordingly, the understatement
was substantial.
Section 6664(c)(1) provides that the accuracy-related
penalty shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer’s
position with respect to that portion and that the taxpayer acted
in good faith with respect to that portion. The determination of
whether a taxpayer acted with reasonable cause and in good faith
within the meaning of section 6664(c)(1) is made on a case-by-
case basis, taking into account all of 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
his proper tax liability for the year. 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.” Id.
Petitioner does not qualify for section 6664(c)(1) relief.
Under the circumstances, petitioner’s failure to consult an
accountant or other tax professional was unreasonable. See Marr
v. Commissioner, T.C. Memo. 1995-250 (finding taxpayer negligent
for claiming theft loss without consulting tax professional).
Petitioner claimed a very large deduction that resulted in
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Last modified: May 25, 2011