Taxpayers face the risk of the 20% accuracy-related penalty when they take return positions that are too aggressive or otherwise problematic... (a) Section 6662 itself contains no escape mechanisms whatsoever, so a tax-payer’s only available defense against the penalty is “good faith and reasonable cause” per § 6664(c). (b) Section 6662 contains two stated triggers, “negligence” and “substantial understatement,” and the IRS cannot assert the penalty unless both are present. (c) Unless a taxpayer ultimately wins with respect to the underlying tax issue(s) (the asserted tax deficiency), it is impossible to win on the penalty issue. (d) If a taxpayer does win with respect to the underlying tax issue(s), the penalty assertion becomes moot.
Taxpayers face the risk of the 20% accuracy-related penalty when they take return positions that are too aggressive or otherwise problematic...
(a) Section 6662 itself contains no escape mechanisms whatsoever, so a tax-payer’s only available defense against the penalty is “good faith and reasonable cause” per § 6664(c).
(b) Section 6662 contains two stated triggers, “negligence” and “substantial understatement,” and the IRS cannot assert the penalty unless both are present.
(c) Unless a taxpayer ultimately wins with respect to the underlying tax issue(s) (the asserted tax deficiency), it is impossible to win on the penalty issue.
(d) If a taxpayer does win with respect to the underlying tax issue(s), the penalty assertion becomes moot.
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