Zalman Melnik and Lea Melnik - Page 48

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               Section 6662(a) authorizes a 20-percent penalty to be                  
          imposed on the portion of an underpayment of income tax                     
          attributable to negligence or disregard of rules or regulations.            
          Sec. 6662(b)(1).  Negligence “includes any failure to make a                
          reasonable attempt to comply with the provisions of * * * [the              
          Internal Revenue Code]”.  Sec. 6662(c); see also Neely v.                   
          Commissioner, 85 T.C. 934, 947 (1985) (stating that negligence is           
          the lack of due care or failure to do what a reasonable person              
          would do under the circumstances).                                          
               Section 6662(a) also authorizes the 20-percent penalty to be           
          imposed if there is a substantial understatement of income tax.             
          Sec. 6662(b)(2).  A substantial understatement of income tax with           
          respect to an individual taxpayer exists if, for any taxable                
          year, the amount of the understatement for the taxable year                 
          exceeds the greater of 10 percent of the tax required to be shown           
          on the return for the taxable year or $5,000, whichever is                  
          greater.  Sec. 6662(d)(1)(A).                                               
               Respondent bears the initial burden of production with                 
          respect to petitioners’ liability for the section 6662 penalty,             
          in that respondent must first produce sufficient evidence to                
          establish that the imposition of the section 6662 penalty is                
          appropriate.  Sec. 7491(c).  If respondent satisfies his initial            
          burden of production, the burden of producing evidence to refute            
          respondent’s evidence and to establish that petitioners are not             






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Last modified: May 25, 2011