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basis standard is not satisfied by a return position that is
merely arguable or a colorable claim. Id. Petitioner did
disclose the receipt of his settlement award by attaching the
Form 1099-MISC and an explanatory addendum to his return. He did
not, however, have a reasonable basis for his position. Thus, a
reduction in the understatement, for purposes of the accuracy-
related penalty, is not warranted.
Section 6664(c)(1) provides that no penalty shall be imposed
if a taxpayer demonstrates that there was reasonable cause for
the underpayment and the taxpayer acted in good faith. The
determination of whether a taxpayer acted with reasonable cause
and in good faith depends upon the facts and circumstances,
including the experience, knowledge, and education of the
taxpayer. See sec. 1.6664-4(b)(1), Income Tax Regs.
Petitioner maintains that he attached the Form 1099-MISC to
his return as “a good-faith effort to show that * * * [he] had
received something that wasn’t subject to tax.” Petitioner, a
lawyer who had previously worked with the Internal Revenue
Service, failed, however, to make even a minimal effort to
determine whether his position was correct. In short, he did not
act with reasonable cause when he failed to report his settlement
award as taxable income. Accordingly, he is liable for the
section 6662(a) accuracy-related penalty.
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Last modified: November 10, 2007