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respect to the penalty, but the taxpayer retains the burden of
proving reasonable cause. Sec. 7491(c); Higbee v. Commissioner,
116 T.C. 438, 448 (2001).
Section 6662(b) provides that the causes justifying the
imposition of the accuracy-related penalty include, inter alia:
(1) Negligence or disregard of rules or regulations, and (2) any
substantial understatement of income tax. “Negligence” is
defined, for purposes of section 6662, as “any failure to make a
reasonable attempt to comply with the provisions of the internal
revenue laws or to exercise ordinary and reasonable care in the
preparation of a tax return”. Sec. 1.6662-3(b)(1), Income Tax
Regs. Section 6662(c) defines “disregard” as “any careless,
reckless, or intentional disregard”.
Under section 6662(d)(1)(A), a substantial understatement
exists where the amount of the understatement exceeds the greater
of 10 percent of the tax required to be shown on the return for
the taxable year at issue or $5,000. For purposes of section
6662(d)(1), “understatement” is defined as the excess of tax
required to be shown on the return over the amount of tax that is
shown on the return, reduced by any rebates. Sec. 6662(d)(2)(A).
The understatement is reduced by the portion of the
understatement attributable to an item for which there was either
substantial authority for its treatment or adequate disclosure of
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Last modified: May 25, 2011