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his QRP in 2003 does not fall within any of the 10-percent
additional tax exceptions enumerated in section 72(t)(2), we
sustain respondent’s determination on this issue.
With respect to the accuracy-related penalty, section
6662(a) imposes a 20-percent penalty with respect “to any portion
of an underpayment of tax required to be shown on a return”.
This penalty applies to underpayments attributable to any
substantial understatement of income tax. Sec. 6662(a), (b)(2).
An “understatement” of income tax is defined as the excess of the
tax required to be shown on the return over the tax actually
shown on the return. Sec. 6662(d)(2)(A). An understatement is
“substantial” if it exceeds the greater of 10 percent of the tax
required to be shown on the return, or $5,000. Sec.
6662(d)(1)(A).
Section 6664 provides a defense to the accuracy-related
penalty if a taxpayer establishes that there was reasonable cause
for any portion of the underpayment and that he acted in good
faith with respect to that portion. Sec. 6664(c)(1); sec.
1.6664-4(b), Income Tax Regs. Although not defined in the Code,
“reasonable cause” is viewed in the regulations as the exercise
of ordinary business care and prudence. See sec. 301.6651-
1(c)(1), Proced. & Admin. Regs. Whether a taxpayer acted with
reasonable cause and in good faith is made on a case-by-case
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