-9-
6662(d)(2)(A), and is substantial in the case of an individual if
the amount of the understatement for the taxable year exceeds the
greater of 10 percent of the tax required to be shown in the
return for that taxable year or $5,000, sec. 6662(d)(1)(A). The
amount of the understatement is to be reduced by that portion of
the understatement which is attributable to (1) “the tax
treatment of any item by the taxpayer if there is or was
substantial authority for such treatment”, sec. 6662(d)(2)(B)(i),
or (2) any item if (a) “the relevant facts affecting the item’s
tax treatment are adequately disclosed in the return or in a
statement attached to the return”, sec. 6662(d)(2)(B)(ii)(I), and
(b) “there is a reasonable basis for the tax treatment of such
item by the taxpayer”, sec. 6662(d)(2)(B)(ii)(II).
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment if it is shown that there
was reasonable cause for, and that the taxpayer acted in good
faith with respect to, such portion. Sec. 6664(c)(1). The
determination of whether the taxpayer acted with reasonable cause
and in good faith depends on the pertinent facts and
circumstances, including the taxpayer’s efforts to assess such
taxpayer’s proper tax liability, the knowledge and experience of
the taxpayer, and the reliance on the advice of a professional,
such as an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs.
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Last modified: November 10, 2007