- 152 -
underpayment of tax due to, inter alia, any substantial
understatement of income tax. Sec. 6662(b)(2). An
understatement of income tax is “substantial” if it exceeds the
greater of 10 percent of the tax required to be shown on the
return or $5,000. Sec. 6662(d)(1)(A). An “understatement” is
defined as the excess of the tax required to be shown on the
return over the tax actually shown on the return, less any
rebate. Sec. 6662(d)(2)(A).
The section 6662(a) penalty will not be imposed with respect
to any portion of the underpayment as to which the taxpayer acted
with reasonable cause and in good faith. Sec. 6664(c)(1); see
also Higbee v. Commissioner, 116 T.C. 438, 448 (2001). The
decision as to whether a taxpayer acted with reasonable cause and
in good faith is made by taking into account all of the pertinent
facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
Relevant factors include the taxpayer’s efforts to assess his or
her proper tax liability, including the taxpayer’s reasonable and
good faith reliance on the advice of a tax professional. See id.
Petitioners argue that the accuracy-related penalties should
not be imposed against the Roses because “respondent is unable to
carry his burden of production as to the penalty pursuant to the
requirements of IRS sec. 7491(c).” Petitioners further argue
that “respondent has failed to adequately consider the reasonable
cause prong of the penalty provision” because “Rose relied on the
Page: Previous 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 NextLast modified: May 25, 2011