The Accuracy-Related Penalty (Part II)

EXECUTIVE
SUMMARY

  • In general, Sec. 6664 provides that a Sec. 6662 accuracy-related chastisement will not request to any apportionment of an underpayment for that a taxpayer had a reasonable means and acted in good faith.
  • The integrity of presumably a taxpayer acted with reasonable means and in good faith is done on a case-by-case basis, holding into comment all impending grant and circumstances. Whether a taxpayer had reasonable means is an pattern determination, and presumably a taxpayer acted in good faith is a biased determination.
  • Depending on a specific grant and circumstances, faith on an informational lapse or on veteran recommendation competence denote reasonable means and good faith by a taxpayer.
  • Special manners request to underpayments associated to reportable transactions, estimable underpayments attributable to corporate taxation preserve items, and gratefulness misstatements of free reduction property.

Sec. 6662 imposes an accuracy-related chastisement equal to 20% of any underpayment of sovereign taxation ensuing from certain taxpayer control (e.g., negligence, loosening of manners or regulations, estimable understatement of income, and certain over- and undervaluations).1 This is partial II of a two-part essay addressing a Sec. 6662 accuracy-related chastisement and a invulnerability accessible to taxpayers. Part I, in a Apr issue, supposing an overview of a several bases on that a IRS can levy a Sec. 6662 penalty. Part II discusses a Sec. 6664 reasonable means and good-faith invulnerability to a Sec. 6662 penalty. Both tools report pivotal considerations for practitioners assisting clients competition an asserted Sec. 6662 penalty.

Overview

Sec. 6664 provides broadly that “[n]o chastisement shall be imposed underneath territory 6662 . . . with honour to any apportionment of an underpayment if it is shown that there was a reasonable means for such apportionment and that a taxpayer acted in good faith with honour to such portion.”2 There are exceptions to a ubiquitous rule, however, and some-more importantly there are endless regulations detailing a resources underneath that taxpayers will be deemed to have acted with reasonable means and good faith. The Sec. 6664 reasonable cause/good-faith difference relates to all Sec. 6662 triggers, not usually a conduct-based triggers.

As discussed in partial I, there is estimable overlie between a Sec. 6662 negligence, drifting disregard, and forward loosening concepts on a one palm and a Sec. 6664 reasonable cause/good-faith judgment on a other. This is since a definitions of loosening (no reasonable try to comply), drifting loosening (no reasonable diligence), and forward loosening (substantial flaw from a customary of control that a reasonable chairman would observe) all generally need a integrity of a discretion of a taxpayer’s conduct. Similarly, a Sec. 6664 reasonable means difference relates if a taxpayer “exercises typical business caring and anticipation in last a taxation obligations” though nonetheless fails to approve with a Code’s requirements.

Given a overlie in vernacular and standards, a Sec. 6664 difference should request many often, if not exclusively, to a estimable understatement and gratefulness penalties. For example, if taxpayers act pretty underneath a resources in scheming their lapse or in last a diagnosis of an object on a lapse (either themselves or by reasonable faith on an adviser), a Sec. 6662 chastisement for loosening or drifting or forward loosening by a terms simply should not request in a initial instance, and taxpayers should have no need to examination to a Sec. 6664 reasonable cause/good-faith defense. If, in contrast, a taxpayer incorrectly deducts an object that is not scrupulously deductible and that reduction causes a estimable understatement, a taxpayer would need to examination to Sec. 6664 in an bid to forgive a understatement (e.g., by demonstrating faith on an information lapse or veteran taxation adviser).3

However, notwithstanding a estimable overlie in orthodox and regulatory standards, a supplies do perform opposite functions. Fundamentally, Sec. 6664 provides an difference to a Sec. 6662 penalty. In other words, it is suitable to cruise of Sec. 6664 as providing a reasonable means forgive for taxpayer control that would differently be theme to chastisement underneath Sec. 6662. Thus, seeking presumably a taxpayer had reasonable means is not indispensably a same as seeking presumably a taxpayer acted reasonably. That is, Sec. 6664 asks (1) presumably a taxpayer has an forgive for his or her control (e.g., estimable understatement of taxation theme to chastisement underneath Sec. 6662) and (2) presumably that forgive constitutes reasonable cause. The scold concentration is on presumably a taxpayer can denote a reasonable forgive (i.e., reasonable cause) for devious from a standards customarily approaching of taxpayers.

Probably a many common such forgive for a taxpayer’s noncompliant control is a taxpayer’s faith on a recommendation of a taxation professional. However, other excuses have been hold to consecrate reasonable cause. Indeed, a regulations state that a integrity of presumably a taxpayer acted with reasonable means and in good faith is done on a case-by-case basis, holding into comment all impending grant and circumstances.4 Given that a Sec. 6664 integrity is fact intensive, a proceed taken here is to plead generally a concepts of reasonable means and good faith and afterwards to examination some of a some-more common situations in that reasonable means and good faith competence be demonstrated.

Reasonable Cause and Good Faith

Sec. 6664 does not interpretation a terms “reasonable cause” and “good faith.” The deficiency of definitions is not surprising, however, as both terms were informed in a context of sovereign taxation penalties for many years before to a orthodox converging of accuracy-related penalties in 1989. For example, former Sec. 6661 (the aged estimable understatement chastisement provision) authorised that a chastisement could be waived “on a display by a taxpayer that there was reasonable means for a understatement . . . and that a taxpayer acted in good faith.” The legislative story to Sec. 6664 states that Congress dictated “that a terms ‘reasonable cause’ and ‘good faith’ be interpreted underneath [Sec. 6664] as those terms are interpreted underneath [then-] benefaction law.”5

The integrity of presumably a taxpayer acted with reasonable means and in good faith is done on a case-by-case basis, holding into comment all impending grant and circumstances.6 The many critical fact in creation this integrity is a border of a taxpayer’s bid to cruise a scold taxation liability.7 To relief themselves of a Sec. 6664 exception, taxpayers have a weight of demonstrating both pattern reasonable means and biased good faith.8 It should be borne in mind that these are dual graphic requirements, nonetheless a IRS and a courts mostly seem to yield a dual concepts as one. In addition, presumably a elements that consecrate reasonable means are benefaction in a given conditions is a doubt of fact, though that elements contingency be benefaction to consecrate reasonable means is a doubt of law.9

Reasonable Cause

The regulations underneath Sec. 6651 interpretation a tenure “reasonable cause” as a “exercise of typical business caring and prudence.”10 As discussed above, Congress dictated this clarification to be used for Sec. 6664. This pattern customary involves a form of research compulsory in a context of a Sec. 6662 loosening determination. Reasonable means exists if a taxpayer “exercises typical business caring and anticipation in last a taxation obligations” though is nonetheless incompetent to approve with a Code. In a context of Sec. 6651, grant or events that forestall a taxpayer from complying with Code requirements, notwithstanding a taxpayer’s use of typical business caring and prudence, include, among other things, a taxpayer’s faith on a taxation adviser, a taxpayer’s faith on a erring recommendation of an IRS officer or employee, a genocide or critical illness of a taxpayer or a member of his or her evident family, a taxpayer’s destined absence, and a drop by misadventure of a taxpayer’s annals or place of business.11

Good Faith

As mentioned earlier, conjunction a Code nor a regulations interpretation “good faith.” Black’s Law Dictionary defines a tenure as “honesty of purpose,” “observance of reasonable blurb standards,” and “absence of pattern to deceive or find an excessive advantage.”12 While it is not transparent from a Code or a regulations, a good-faith member of a Sec. 6664 difference generally is deliberate to be a biased standard.13 As such, a doubt for this purpose is presumably a taxpayer indeed acted in good faith, not presumably a taxpayer’s actions were objectively reasonable.

Thus, a Sec. 6664 invulnerability to a Sec. 6662 chastisement has both biased and pattern aspects. The Sec. 6664 regulations do not interpretation a terms though do yield examples of situations where both are found, or not, as a box competence be. Because a reasonable means and good-faith determinations both engage a facts-and-circumstances analysis, it is maybe many exegetic to examination those examples in an bid to see a terms’ concentration in specific contexts.

Specific Circumstances and Taxpayer Conduct

Reliance on an Information Return

The regulations provide, rather unhelpfully, that faith on an information lapse demonstrates reasonable means and good faith “if, underneath all a circumstances, such faith was reasonable and a taxpayer acted in good faith.”14 Warning that faith on an information lapse “does not indispensably denote reasonable means and good faith,” a regulations explain that:

A taxpayer’s faith on erring information reported on a Form W-2, Form 1099 or other information lapse indicates reasonable means and good faith, supposing a taxpayer did not know or have reason to know that a information was incorrect. Generally, a taxpayer knows, or has reason to know, that a information on an information lapse is improper if such information is unsuitable with other information reported or differently furnished to a taxpayer, or with a taxpayer’s trust of a transaction. This trust includes, for example, a taxpayer’s trust of a terms of his use attribute or of a rate of lapse on a payor’s obligation.15

An instance in a regulations illustrates a foregoing.16 In a example, a taxpayer did peculiar jobs and filled in for other employees when necessary. The taxpayer worked strange hours and was paid by a hour. The volume of a taxpayer’s paycheck differed from week to week. The Form W-2, Wage and Tax Statement, furnished to a taxpayer reflected $29,729 of salary for a taxation year. The W-2, however, did not embody remuneration of $1,467 paid for some hours a taxpayer worked. The taxpayer, relying on a Form W-2, filed a lapse stating salary of $29,729. The taxpayer had no reason to know that a volume reported on a Form W-2 was incorrect. The regulations interpretation that, underneath these circumstances, a taxpayer “is deliberate to have acted in good faith in relying on a Form W-2 and to have reasonable means for a underpayment attributable to a unreported wages.”

Practice tip: Notwithstanding a regulation’s ambivalence per faith on an information return, in many cases a taxpayer should be means to rest on a information reported on forms such as a W-2, a 1099 series, and Form 1098, Mortgage Interest Statement. Obviously, if a information is on a face unsuitable with a taxpayer’s bargain of a applicable facts, a taxpayer has a avocation to examine a apparent discrepancy. But amounts that seem “in a ballpark” should not need serve taxpayer investigation. Because a taxpayer is not generally compulsory to obtain a second opinion with honour to veteran advice, a taxpayer should likewise be means to assume that a information supposing on such forms is accurate though auditing such amounts.

Reliance on Advice

The regulations enclose a likewise unenlightening and round sequence with honour to faith on veteran taxation advice: Reliance on veteran recommendation demonstrates reasonable means and good faith usually if a taxpayer’s faith was, underneath a circumstances, reasonable and in good faith. Again, a regulations advise that faith on a taxation professional’s recommendation or an appraiser does not indispensably denote reasonable means and good faith.

Indeed, sincerely elaborate manners are supposing that settle a poignant basement a taxpayer contingency denote to support a Sec. 6664 “reliance-on-counsel” defense. As a ubiquitous rule, a regulations yield that all grant and resources contingency be deliberate in last presumably a taxpayer has pretty relied in good faith on veteran taxation advice. For example, a taxpayer’s education, sophistication, and business trust are applicable in last presumably his or her faith on taxation recommendation was reasonable and done in good faith.

Reliance on veteran advice—Minimum requirements: The regulations flatly state that “[i]n no eventuality will a taxpayer be deliberate to have pretty relied in good faith on advice” unless a mandate of Regs. Sec. 1.6664-4(c)(1) are satisfied.17 The tenure “advice” for this purpose means

any communication, including a opinion of a veteran taxation adviser, sourroundings onward a research or end of a person, other than a taxpayer, supposing to (or for a advantage of) a taxpayer and on that a taxpayer relies, directly or indirectly, with honour to a deception of a territory 6662 accuracy-related penalty.18

Advice does not have to be in any sold form (i.e., it can be created or oral). It is critical to bear in mind that these are truly smallest standards; some-more importantly, their compensation is a compulsory though not sufficient condition for a difference to apply. For example, a taxpayer’s faith competence not be deliberate to be reasonable or in good faith if a taxpayer knew, or pretty should have known, that a confidant lacked trust in a applicable aspects of sovereign taxation law. The 3 specific “minimum requirements” are:

  • The recommendation contingency be shaped on all grant and circumstances;
  • The recommendation competence not rest on irrational assumptions; and
  • If a recommendation is that a law is invalid, a position contingency be sufficient disclosed.

These specific smallest mandate are discussed in larger fact below.

All grant and resources considered: The recommendation contingency be shaped on all impending grant and resources and a law as it relates to those grant and circumstances. This means, for example, that a recommendation “must take into comment a taxpayer’s functions (and a relations weight of such purposes) for entering into a transaction and for structuring a transaction in a sold manner.”19 In addition, this smallest requirement is not confident if a taxpayer fails to divulge to a confidant a fact that a taxpayer knows, or pretty should know, is applicable to a scold taxation diagnosis of an object that is a theme of a advice.20

No irrational assumptions: The regulations also need that a recommendation contingency not be shaped on irrational poignant or authorised assumptions.21 In addition, a recommendation contingency not “unreasonably rely” on any representations, statements, findings, or agreements of a taxpayer or any other person. For example, a recommendation contingency not be shaped on a illustration or arrogance that a taxpayer knows, or has reason to know, is doubtful to be true—e.g., an false illustration or arrogance as to a taxpayer’s functions for entering into a transaction or for structuring a transaction in a sold manner.

Reliance on a invalidity of a regulation: A taxpayer competence not rest on an adviser’s opinion or recommendation that a law is shabby to settle that a taxpayer had reasonable means and acted in good faith unless a taxpayer sufficient discloses a position.22 The taxpayer contingency make a avowal compulsory here in suitability with Regs. Sec. 1.6662-3(c)(2). As discussed in partial we of this article, this generally requires avowal on a finished Form 8275, Disclosure Statement, or 8275-R, Regulation Disclosure Statement.23

Practice tip: The regulations state that in sequence for a taxpayer’s faith on recommendation to consecrate reasonable means and good faith, a faith itself contingency be reasonable. In this regard, a regulations state that a taxpayer’s education, sophistication, and business trust are applicable factors in last presumably a taxpayer’s faith on taxation recommendation was reasonable. Because discretion is always dynamic “under a circumstances,” this adds small to a compulsory analysis.

Moreover, a smallest mandate themselves seem to emanate a customary that a courts, including a Supreme Court, have rejected. For example, a regulations need that a recommendation contingency cruise all grant and resources and contingency enclose no irrational assumptions. But how is a normal taxpayer (i.e., one who is not an consultant in sovereign taxation law) to decider presumably his or her confidant has deliberate all impending grant or has done any irrational assumptions (especially authorised assumptions)? The answer is that they many expected cannot. More importantly, they need not make this judgment:

When an accountant or profession advises a taxpayer on a matter of taxation law, such as presumably a guilt exists, it is reasonable for a taxpayer to rest on that advice. Most taxpayers are not efficient to discern blunder in a concrete recommendation of an accountant or attorney. To need a taxpayer to plea a attorney, to find a “second opinion,” or to try to guard warn on a supplies of a Code himself would stop a really purpose of seeking a recommendation of a reputed consultant in a initial place. . . . “Ordinary business caring and prudence” does not direct such actions.24 [Internal citations omitted.]

Even with honour to a requirement that taxpayers divulge “invalid regulations” positions, a regulations seem to surpass what has been compulsory of taxpayers by courts. The impending doubt for functions of Sec. 6664 is not a discretion of a recommendation though a discretion of a taxpayer’s faith on a advice. If a recommendation is facially so poor that even one ignorant in a nuances of sovereign taxation law could straightforwardly discern a invalidity, it would of march be irrational for a taxpayer to rest on it. This, however, in use should infer to be a singular difference rather than a rule. In many cases, it should be reasonable for a taxpayer to rest on a recommendation of a competent taxation veteran to whom a taxpayer has supposing all impending information.

Tax Shelter Items of Corporations

With honour to a taxation preserve object that creates a estimable understatement of income tax, a regulations yield special manners for last presumably a house demonstrates reasonable means and good faith. A taxation preserve object for this purpose means any object “directly or indirectly attributable to a principal purpose of a taxation preserve to equivocate or hedge Federal income tax.”25 A taxation preserve is any partnership or other entity (such as a house or trust), any investment devise or arrangement, or any other devise or arrangement whose principal purpose is to equivocate or hedge sovereign income tax.26

Practice tip: The regulations acknowledge that a transaction’s principal purpose is not to equivocate or hedge sovereign income taxation if a purpose is to explain exclusions from income, accelerated deductions, or other taxation advantages in a demeanour unchanging with a government and congressional purpose.27 The regulations brand several common activities that are not taxation preserve activities, such as holding tax-exempt bonds, holding cost liberation deductions, deferring income in taxation easeful retirement vehicles, and electing unfamiliar sales house status.28 Thus, a regulations acknowledge that certain orthodox supplies are inherently taxpayer favorable, and taxpayers competence relief themselves of a advantages thereof though their actions being characterized as improperly “tax motivated.”

As is generally a case, a integrity of presumably a house acted with reasonable means and in good faith in a diagnosis of a taxation preserve object is shaped on all impending grant and circumstances. However, a regulations brand specific ways in that a house can settle reasonable means and good faith with honour to such items. Specifically, underneath a regulations a house competence settle reasonable means and good faith with honour to a taxation preserve object by presumably authorised justification or other factors.

Reasonable Cause Based on Legal Justification

The tenure “legal justification” includes any justification relating to a diagnosis or characterization underneath a sovereign taxation law of a object or transaction in question.29 Thus, a taxpayer’s faith (whether exclusively shaped or shaped on a recommendation of others) as to a merits of a taxpayer’s underlying position is a authorised justification. Here too a regulations brand dual supposed smallest requirements—the management requirement and a faith requirement. Failure to accommodate these mandate will obviate a anticipating of reasonable means and good faith shaped on authorised justification. However, assembly a mandate is not indispensably sufficient to infer reasonable means and good faith.

Authority requirement—substantial authority: The management requirement is confident usually if there is estimable management (within a definition of Regs. Sec. 1.6662-4(d)) for a taxation diagnosis of a item.

Belief requirement—more expected than not: The faith requirement is confident usually if, shaped on all grant and circumstances, a taxpayer pretty believed, during a time a lapse was filed, that a taxation diagnosis of a object was some-more expected than not a scold treatment. The taxpayer can presumably make this integrity or rest on a veteran taxation adviser. In presumably case, such integrity contingency be done in a demeanour prescribed in a regulations (essentially, a clever weighing of a applicable authorities). In creation a more-likely-than-not determination, a taxpayer competence not take into comment a probability that a lapse will not be audited, that an emanate will not be lifted on audit, or that an emanate will be settled.30

Practice tip: As remarkable above, assembly a smallest mandate competence not be adequate to infer reasonable means and good faith. The regulations state that compensation of a smallest mandate would not be dispositive if, for example, a taxation preserve lacked poignant business purpose, if a taxpayer claimed taxation advantages that were irrational compared with his or her investment in a taxation shelter, or if a taxpayer concluded with a taxation shelter’s organizer or upholder that a taxpayer would strengthen a confidentiality of a taxation aspects of a taxation shelter’s structure.31

It is not straightforwardly apparent what this regulatory matter adds to a analysis. For example, it is formidable to suspect a existence of estimable management for a transaction that lacks business purpose. Similarly, it is expected that a transaction a taxation advantages of that are irrational compared with a taxpayer’s investment would miss mercantile substance. Nonetheless, a smallest mandate contingency be met, nonetheless assembly them will not indispensably be sufficient to settle reasonable means and good faith in this context.

Reasonable Cause Based on Other Factors

If a corporate taxpayer with a estimable understatement attributable to a taxation preserve object is incompetent to prove a smallest requirements, all is not lost. The regulations easily yield that a corporate taxpayer in this conditions can nonetheless denote reasonable means and good faith by introducing other grant and circumstances.

Valuation Misstatements of Charitable Deduction Property

With honour to skill valuations, a small fact that a taxpayer obtains an estimation is deficient in itself to denote reasonable means and good faith.32 Other factors contingency be considered, including a methodology and assumptions underlying a appraisal, a appraised value, a attribute between appraised value and squeeze price, a resources underneath that a estimation was obtained, and a appraiser’s attribute to a taxpayer or to a activity in that a skill is used.33

With honour to free reduction property, a reasonable cause/good-faith difference does not request unless a taxpayer (1) shaped a claimed value of a skill on a competent estimation done by a competent appraiser and (2) done a good-faith review of a value of a contributed property.34 For this purpose a tenure “charitable reduction property” means any skill (other than income or publicly traded securities) contributed by a taxpayer where a reduction was claimed underneath Sec. 170 (the free grant deduction).35

Qualified appraisal: The tenure “qualified appraisal” means, for any property, an estimation of such skill that is (1) treated as a competent estimation underneath regulations or other superintendence prescribed by a IRS and (2) conducted by a competent appraiser in suitability with generally supposed estimation standards and any regulations or other guidance.36

Qualified appraiser: The tenure “qualified appraiser” means an particular who:

  • Has warranted an estimation nomination from a famous veteran appraiser classification or has differently met smallest preparation and trust mandate set onward in a regulations;
  • Regularly performs appraisals for that he or she receives compensation; and
  • Meets such other mandate as competence be prescribed by a IRS in regulations or other guidance.37

Practice tip: In this context, a Code and regulations seem to need some-more of taxpayers than courts have compulsory in other contexts (e.g., faith on other advisers). Again, a doubt for functions of Sec. 6664 is presumably a taxpayer can denote reasonable means and good faith. In responding this question, a concentration is scrupulously on a discretion of a taxpayer’s faith on a appraiser’s advice, not a discretion of a estimation itself. Nonetheless, a Code and a regulations in this context put a taxpayer in a position of carrying to decider or review a work of his or her confidant (in this box an appraiser) or a adviser’s work product, something a Supreme Court has pronounced is not compulsory to denote reasonable means in other contexts.

What creates this conditions worse is that there are elaborate regulatory mandate defining “qualified” appraisers and appraisals, and they need poignant and authorised conclusions that are over a trust of all though a many worldly and associating taxpayers. Similarly, in sequence to support a taxpayer’s explain of reasonable means and good faith, a regulations also need that a taxpayer make “a good faith review of a value of a contributed property.” But is that not accurately since a taxpayer is consulting an appraiser in a initial place?

As a process matter, a scold doubt ought to be simply presumably a taxpayer’s faith on a appraiser was, underneath a circumstances, reasonable and in good faith. Minimum mandate or needed mandate simply upset a matter. For example, suspect a taxpayer pretty and in good faith relies on an appraiser who presents himself as qualified, though it turns out that, unbeknownst to a taxpayer, a appraiser does not in fact possess a compulsory education underneath a regulations. It creates no sense—indeed it would be factually incorrect—under these resources to claim that a taxpayer did not act in good faith and did not have reasonable means for his or her gratefulness position. Nonetheless, this would be a outcome underneath a Code and regulations. This situation, however, is mostly mitigated by a fact that a Sec. 6662 gratefulness triggers are substantial over-/undervaluation triggers, and they do not request unless a taxpayer’s gratefulness misses a symbol by a estimable amount.

Underpayments Attributable to Reportable Transactions

Sec. 6664 establishes special manners per a reasonable means and good-faith integrity for any reportable transaction understatement.38 A reportable transaction understatement is generally any understatement attributable to a listed transaction or any other reportable transaction a poignant purpose of that is a deterrence or semblance of sovereign income tax.39 Reportable exchange are those exchange that taxpayers are compulsory to divulge underneath Regs. Sec. 1.6011-4 (including, among other things, trusted transactions, exchange with contractual protection, certain detriment transactions, and “transactions of interest”).40

For a reportable transaction understatement, a Sec. 6664 reasonable cause/good-faith difference does not request unless a taxpayer meets certain orthodox requirements. Specifically, a transaction contingency be sufficient disclosed per a Sec. 1.6011-4 regulations, there contingency be estimable management for a taxpayer’s diagnosis of a transaction, and a taxpayer contingency pretty trust that his or her diagnosis of a transaction was some-more expected than not a scold treatment.41 Moreover, to be reasonable for this purpose, a taxpayer’s faith contingency be shaped on a grant and law that existed during a time a lapse was filed and contingency serve be shaped usually on a concrete merits of a position (and not a chances that a transaction competence not be reviewed on audit).42 In addition, a taxpayer’s reasonable faith competence not be shaped on certain unfit advisers or unfit opinions.43

Sec. 482 Valuations

Detailed regulations oversee a Sec. 482 gratefulness chastisement underneath Sec. 6662(b)(3).44 A contention of these regulations is over a range of this article. Nonetheless, as a ubiquitous rule, a Sec. 6664 reasonable cause/good-faith difference relates to any such gratefulness penalty.45 However, Sec. 6662 itself states that a taxpayer is deemed not to have reasonable means for any apportionment of an underpayment attributable to a net Sec. 482 send cost composition unless a taxpayer meets certain Sec. 6662(e)(3)(B) mandate (i.e., a send pricing methodology used by a taxpayer and a taxpayer’s prolongation of Sec. 482 attendant documentation). Thus, these can be deliberate to be smallest mandate for functions of demonstrating reasonable cause/good faith with honour to Sec. 482 valuations.

Conclusion

The Sec. 6662 accuracy-related chastisement manners are countless and complicated. Fortunately for taxpayers, Congress has famous that generally usually irrational taxpayer control should be penalized. Thus, Sec. 6664 provides a reasonable cause/good-faith difference to a deception of a Sec. 6662 penalty. However, since it requires a facts-and-circumstances determination, a Sec. 6664 difference is itself formidable and mostly formidable to apply. In an sourroundings where a Sec. 6662 accuracy-related chastisement is being customarily asserted by IRS agents, it is needed that taxation advisers be informed with both a Sec. 6662 manners and a Sec. 6664 reasonable cause/good-faith difference rules.

Footnotes

1 The tenure “tax” for this purpose means any taxation imposed by a Internal Revenue Code (Sec. 6664(a)). Thus, a Sec. 6662 chastisement can request to, among others, underpayments of income tax, present tax, estate tax, or use tax.

2 Sec. 6664(c)(1).

3 In practice, IRS agents seem to cite to yield taxpayers as availing themselves of an difference to a Sec. 6662 chastisement rather than noticing that a chastisement does not request ab initio.

4 Regs. Sec. 1.6664-4(b)(1).

5 H.R. Conf. Rep’t No. 386, 101st Cong., 1st Sess. (1989), to accompany a Omnibus Budget Reconciliation Act of 1989, P.L. 101-239.

6 Regs. Sec. 1.6664-4(b)(1).

7 Id.

8 This is a taxpayer’s weight since a IRS’s avowal of a Sec. 6662 chastisement is presumptively scold and Sec. 6664 is radically an certain invulnerability thereto.

9 Boyle, 469 U.S. 241 (1985).

10 Regs. Sec. 301.6651-1(c)(1).

11 IRM §20.1.1.3.2.

12 Black’s Law Dictionary 477 (6th ed. 1991).

13 Barrett, 561 F.3d 1140 (10th Cir. 2009). In a rapist context, see Cheek, 498 U.S. 192 (1991) (a good-faith disagreement of a law or a good-faith faith that one is not violating a law need not be “objectively reasonable if it is to be deliberate as presumably negating a Government’s justification purporting to uncover a defendant’s recognition of a authorised avocation during issue”).

14 Regs. Sec. 1.6664-4(b)(1).

15 Id.

16 Regs. Sec. 1.6664-4(b)(2), Example (3).

17 Regs. Sec. 1.6664-4(c)(1).

18 Regs. Sec. 1.6664-4(c)(2).

19 Regs. Sec. 1.6664-4(c)(1)(i).

20 Id.

21 Regs. Sec. 1.6664-4(c)(1)(ii).

22 Regs. Sec. 1.6664-4(c)(1)(iii).

23 See a contention during p. 253 in a Apr issue.

24 Boyle, 469 U.S. during 251.

25 Regs. Sec. 1.6662-4(g)(3).

26 Sec. 6662(d)(2)(C); Regs. Sec. 1.6662-4(g)(2).

27 Regs. Sec. 1.6662-4(g)(2)(ii).

28 Id.

29 Regs. Sec. 1.6664-4(f)(2)(ii).

30 Regs. Sec. 1.6664-4(f)(2)(i)(B).

31 Regs. Sec. 1.6664-4(f)(3).

32 Regs. Sec. 1.6664-4(b)(1). The deficiency of an estimation itself would expected denote loosening in many cases, however.

33 Id.

34 Sec. 6664(c)(2).

35 Regs. Secs. 1.6664-4(h)(1) and 1.6664-4(h)(2).

36 Sec. 170(f)(11)(E)(i).

37 There are endless regulations underneath Sec. 170 that yield serve definitions and mandate for appraisals and appraisers for this purpose. A full contention of those manners is outward a range of this article.

38 Sec. 6664(d).

39 Sec. 6662A(b)(2).

40 Regs. Sec. 1.6011-4(b).

41 Sec. 6664(d)(2).

42 Sec. 6664(d)(3)(A).

43 Sec. 6664(d)(3)(B).

44 See generally Regs. Sec. 1.6662-6.

45 Regs. Sec. 1.6662-6(b)(3).

EditorNotes

John Cook is an partner highbrow of accountancy in a Raj Soin College of Business during Wright State University in Dayton, OH. Alan Ocheltree is director, Tax Controversy, during Cardinal Health, Inc., in Dublin, OH. For some-more about this article, hit Prof. Cook during john.cook@wright.edu.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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