Accuracy ~ Related Penalty Proper; Although Return Prepared by Tax Professional, No Evidence of Reliance (Woodsum, TC)

The accuracy-related penalty was properly imposed on a married couple who omitted almost $3.4 million dollars of income from their 115-page federal income tax return. The amount omitted was a substantial understatement of income and was not omitted as a result of professional advice that could be relied upon to avoid the penalty. To be advice, the communication relied upon must reflect the advisor’s analysis and conclusion, and the taxpayer must show that he relied in good faith upon the advisor’s judgment to avoid the penalty.

There was no evidence that the income was omitted from the couple’s return because of any analysis or conclusion of the tax return preparer that the income was not taxable. Moreover, it took no special training for the taxpayer to know that the law required him to report all his Form 1099-MISC income on his tax return. While computational or transcription errors are not inconsistent with the good-faith reasonable cause defense, the taxpayer had a duty to review the return to ensure that all income was included and he failed to explain why the income was omitted from the return.

S.G. Woodsum, 136 TC –, No. 29, Dec. 58,658

Other References:

Code Sec. 6662

CCH Reference – 2011FED ¶39,651G.135

CCH Reference – 2011FED ¶39,651G.139

Tax Research Consultant

CCH Reference – TRC PENALTY: 3,100

CCH Reference – TRC PENALTY: 3,108

CCH Reference – TRC PENALTY: 3,116


Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting