-12-
the return, or $5,000. Sec. 6662(a), (b)(1) and (2), (d)(1)(A);
sec. 1.6662-4(a), Income Tax Regs.
Respondent has met his burden of production with respect to
petitioner’s substantial understatement of income tax. The
record indicates that petitioner reported income tax of $152,689.
Petitioner’s underpayment for which respondent seeks to apply
the accuracy-related penalty is $393,862. The tax required to be
shown on the return, for purposes of determining if there was a
substantial understatement of income tax here, is the sum of
these two amounts, $546,551. Ten percent of the tax required to
be shown on the return is $54,655. Petitioner’s understatement
is greater than $54,655. Accordingly, petitioner’s underpayment
of income tax is a substantial understatement.
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment if the taxpayer proves
that there was reasonable cause for his or her position and that
he or she acted in good faith with respect to such portion. Sec.
6664(c)(1); Higbee v. Commissioner, supra at 446; sec. 1.6664-
4(a), Income Tax Regs. 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 the pertinent facts and
circumstances, including the taxpayer’s reasonable reliance on a
professional tax adviser. Sec. 1.6664-4(b)(1), Income Tax Regs.
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Last modified: May 25, 2011