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Section 6662 Accuracy-Related Penalty
Respondent determined a 20-percent penalty under section
6662(a) on the underpayment of tax resulting from the disallowed
education expense deduction. Respondent asserts that the
underpayment is attributable to negligence or disregard of rules
or regulations. See sec. 6662(b)(1). For the purpose of section
6662, negligence includes any failure to make a reasonable
attempt to comply with tax laws, and disregard includes any
careless, reckless, or intentional disregard of rules or
regulations. Sec. 6662(c).
Section 6664 provides a defense if a taxpayer establishes
that there was reasonable cause for the underpayment and that she
acted in good faith with respect to that portion.9 Sec.
6664(c)(1); sec. 1.6664-4(a), Income Tax Regs.; see also United
States v. Boyle, 469 U.S. 241, 243 (1985); Higbee v.
Commissioner, 116 T.C. at 448. Although not defined in the Code,
“reasonable cause” is viewed in the applicable regulations as the
exercise of “ordinary business care and prudence”. Sec.
9 Petitioner’s counsel argued that the sec. 6662 accuracy-
related penalty should be reduced because substantial authority
exists to support petitioner’s deduction of her M.B.A. expenses,
citing sec. 6662(d)(2)(B)(i). Counsel’s reliance on that section
is misplaced because sec. 6662(d) relates to accuracy-related
penalties imposed on substantial understatements of income tax
under sec. 6662(b)(2). In this case, however, the misconduct for
which respondent seeks to impose the accuracy-related penalty is
negligence under sec. 6662(b)(1), not a substantial
understatement under sec. 6662(b)(2). Sec. 6662(d)(2)(B)(i) is
inapposite.
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Last modified: March 27, 2008