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B. Section 6662 Penalty
Pursuant to section 6662(a), a taxpayer may be liable for a
penalty of 20 percent on the portion of an underpayment of tax
attributable to: (1) Negligence or disregard of rules or
regulations or (2) a substantial understatement of income tax.
Sec. 6662(b)(1) and (2). Whether applied because of a
substantial understatement of income tax or negligence or
disregard of rules or regulations, the accuracy-related 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). The decision as to whether the taxpayer
acted with reasonable cause and in good faith depends upon all
the pertinent facts and circumstances. See sec. 1.6664-4(b)(1),
Income Tax Regs.
Negligence includes any failure to make a reasonable attempt
to comply with the Internal Revenue Code. Sec. 6662(c).
Respondent established that (1) petitioners failed to
substantiate items properly, and (2) on their 2002 and 2003
returns, (a) petitioners claimed EICs of $352,854 and $489,827,
respectively (which is patently frivolous as the maximum EIC for
both 2002 and 2003 was less than $5,000), and (b) petitioners
reported that they did not have an interest in a financial
account in a foreign country even though in 2001 and 2002
petitioners sent money to Orion via wire transfers to banks and
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Last modified: November 10, 2007