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Section 6662 Accuracy-Related Penalties
Under section 6662, a taxpayer may be liable for a penalty
of 20 percent on the portion of an underpayment of tax due to
(1) negligence or intentional disregard of rules or regulations
or (2) any substantial understatement of income tax. Sec.
6662(a) and (b)(1) and (2). Section 6662(c) defines “negligence”
as including any failure to make a reasonable attempt to comply
with the provisions of the Internal Revenue Code and defines
“disregard” as any careless, reckless, or intentional disregard.
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). Petitioner’s
understatement of tax for 2002 is substantial.
The section 6662(a) penalty is not 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, 488 (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
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Last modified: May 25, 2011