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exceeds the greater of 10 percent of the tax required to be shown
on the return for the taxable year or $5,000 ($10,000 in the case
of a corporation). For purposes of this computation, the amount
of the understatement is reduced to the extent attributable to an
item: (1) For which there existed substantial authority for the
taxpayer’s treatment thereof, or (2) with respect to which
relevant facts were adequately disclosed on the taxpayer’s return
or an attached statement and there existed a reasonable basis for
the taxpayer’s treatment of the item. See sec. 6662(d)(2)(B).
An exception to the section 6662(a) penalty is set forth in
section 6664(c)(1) and reads: “No penalty shall be imposed under
this part with respect to any portion of an underpayment if it is
shown that there was a reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.”
Regulations interpreting section 6664(c) state:
The determination of whether a taxpayer acted with
reasonable cause and in good faith is made on a case-
by-case basis, taking into account all pertinent facts
and circumstances. * * * Generally, the most important
factor is the extent of the taxpayer’s effort to assess
the taxpayer’s proper tax liability. * * * [Sec.
1.6664-4(b)(1), Income Tax Regs.]
Reliance upon the advice of a tax professional may, but does
not necessarily, demonstrate reasonable cause and good faith in
the context of the section 6662(a) penalty. Id.; see also United
States v. Boyle, 469 U.S. 241, 251 (1985); Freytag v.
Commissioner, supra at 888. Such reliance is not an absolute
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Last modified: November 10, 2007