- 19 - a taxpayer establishes that there was reasonable cause for 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.; see also 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. 301.6651-1(c)(1), Proced. & Admin. Regs.; see United States v. Boyle, supra at 246. The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Considering the taxpayer’s education, experience, and knowledge, a reasonable misunderstanding of fact or law may indicate reasonable cause and good faith. Higbee v. Commissioner, supra at 449. Generally, the most important factor is the extent of the taxpayer’s effort to assess the proper tax liability, including reliance on the advice of a tax return preparer. However, reliance on a professional adviser, alone, is insufficient; the reliance must be reasonable and the taxpayer must act in good faith. Sec. 1.6664-4(b)(1), Income Tax Regs. Furthermore, a substantial understatement of income tax is reduced by that portion of the understatement attributable to the tax treatmentPage: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: March 27, 2008