Norman John Haas III and Susan Renee Haas - Page 14

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         imposition of the penalty or addition to tax is appropriate.                 
         Higbee v. Commissioner, supra.  Once the Commissioner meets his              
         burden of production, the taxpayer must come forward with                    
         evidence sufficient to persuade a court that the Commissioner’s              
         determination is incorrect.  Id. at 447.                                     
              Respondent determined that a section 6662 accuracy-related              
         penalty is due with respect to petitioners’ tax return for 2001.             
         Section 6662 imposes a penalty equal to 20 percent of the portion            
         of the underpayment attributable to negligence or disregard of               
         rules or regulations.  Sec. 6662(a) and (b)(1).  The term                    
         “negligence” is defined as any failure to make a reasonable                  
         attempt to comply with the provisions of the Internal Revenue                
         Code, and the term “disregard” includes any careless, reckless,              
         or intentional disregard.  Sec. 6662(c).  Negligence also                    
         includes any failure by the taxpayer to keep adequate books and              
         records or to substantiate items properly.  Sec. 1.6662-3(b)(1),             
         Income Tax Regs.  Respondent has carried his burden of production            
         in this case by showing that petitioners failed to fully                     
         substantiate their itemized deductions in several categories.                
              The accuracy-related penalty will apply unless petitioners              
         demonstrate that there was reasonable cause for the underpayment             
         and that they acted in good faith with respect to the                        
         underpayment.  Sec. 6664(c).  Whether a taxpayer acted with                  
         reasonable cause and good faith depends on the pertinent facts               

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