Lazar Simov Kovachevich - Page 13




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         reasonable and ordinarily prudent person would do under the                  
         circumstances’”.  Freytag v. Commissioner, 89 T.C. 849, 887                  
         (1987) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th             
         Cir. 1967), affg. on this issue 43 T.C. 168 (1964) and T.C. Memo.            
         1964-299), and citing Zmuda v. Commissioner, 731 F.2d 1417, 1422             
         (9th Cir. 1984), affg. 79 T.C. 714 (1982)).  If a “taxpayer fails            
         to make a reasonable attempt to ascertain the correctness of a               
         deduction, credit or exclusion on a return which would seem to a             
         reasonable and prudent person to be ‘too good to be true’ under              
         the circumstances”, then there is a strong indication of                     
         negligence.  Sec. 1.6662-3(b)(1)(ii), Income Tax Regs.                       
              Section 6664(c)(1) is an exception to the section 6662(a)               
         penalty:  no penalty is imposed with respect to any portion of an            
         underpayment if it is shown that there was reasonable cause                  
         therefor and the taxpayer acted in good faith.  Section                      
         1.6664-4(b)(1), Income Tax Regs., incorporates a facts and                   
         circumstances test to determine whether the taxpayer acted with              
         reasonable cause and in good faith.  The most important factor is            
         the extent of the taxpayer’s effort to assess his proper tax                 
         liability.  Id.  “Circumstances that may indicate reasonable                 
         cause and good faith include an honest misunderstanding of fact              
         or law that is reasonable in light of * * * the experience,                  
         knowledge and education of the taxpayer.”  Id.                               








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