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C. Section 6662
Respondent argues that petitioner is liable for the section
6662 penalty for 1999, 2000, and 2001. Pursuant to section
6662(a), a taxpayer may be liable for a penalty of 20 percent on
the portion of an underpayment of tax due to negligence or
disregard of rules or regulations or a substantial understatement
of income tax. Sec. 6662(b). An “understatement” is the
difference between the amount of tax required to be shown on the
return and the amount of tax actually shown on the return. Sec.
6662(d)(2)(A). A “substantial understatement” exists if the
understatement exceeds the greater of (1) 10 percent of the tax
required to be shown on the return for a taxable year or (2)
$5,000. See sec. 6662(d)(1)(A).
The accuracy-related penalty is not imposed with respect to
any portion of the underpayment as to which the taxpayer acted
with reasonable cause and in good faith. Sec. 6664(c)(1). 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 professional. See id.
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