An individual who was hired by the International Monetary Fund (IMF) was not liable for accuracy-related penalties. She had reasonable cause for her failure to report her IMF wages as self-employment income. She self-prepared the tax returns at issue and reported her IMF wages as income; however, she did not report the wages as self-employment income nor did she compute self-employment tax. She did make estimated tax payments for each year based on information she was given soon after she started her employment with the IMF.
The taxpayer had reasonable cause for failing to report her IMF wages as self-employment income and she acted with good faith. She failed to understand, from the initial meeting with the IMF employee who explained the tax rules, from a subsequent slide presentation on the tax implications of IMF wages and from the disparity between her estimated tax payments and reported tax liability, that she had a self-employment tax liability. In addition, she had consulted the instructions for the Form 1040; however, she made an honest mistake in applying the instructions as she thought she was not self-employed.
A.Y. Chien, Dec. 59,210(M)
Code Sec. 6662
CCH Reference – 2012FED ¶39,651D.55
Tax Research Consultant
CCH Reference – TRC INDIV: 63,500 CCH Reference – TRC PENALTY: 3,108.15