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Petitioners have conceded the deficiencies in tax as determined
by respondent. Petitioners understated gross receipts on their
Schedule C, Profit or Loss From Business, for all the years in
issue. Petitioners have conceded that they understated gross
receipts by $267,273 for 2003, which amount was nearly half of
the actual gross receipts in that year.
Under section 6662, a taxpayer may be liable for a penalty
of 20 percent on the portion of an underpayment of tax
attributable to a substantial understatement of tax. Sec.
6662(a). The term “substantial understatement” is defined as the
greater of 10 percent of the tax required to be shown on the
return for the taxable year or $5,000. Sec. 6662(d). However,
the accuracy-related penalty is not imposed with respect to any
portion of the understatement as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1); Higbee v.
Commissioner, 116 T.C. 438, 448-449 (2001). The decision as to
whether the taxpayer acted with reasonable cause and in good
faith depends upon all the pertinent facts and circumstances.
Sec. 1.6664-4(b)(1), Income Tax Regs. Relevant factors include
the taxpayer’s efforts to assess his proper tax liability,
including the taxpayer’s reasonable and good faith reliance on
the advice of a tax professional. See id.
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Last modified: March 27, 2008