Negligence vs. Disregard: The Differences

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In this day and age of sound-bite politics and bold faced liars "serving" as elected officials, we all are coming to learn that nomenclature matters - A LOT.  In the realm of taxation, it particularly matters in negotiating the accuracy-related penalty under IRC 6662(c) with the IRS.

So many people, taxpayers and paid professionals alike, can find themselves profoundly misguided.  It really is remarkable.  When I find myself confronted by otherwise well-meaning people suffering from delusions of grandeur, relying on the Code and accompanying Treasury Regulations has traditionally been a source of comfort.

Section 6662(c) and Reg. §1.6662-3(b) provide the following definitions and guidance.

Negligence: includes any failure to make a reasonable attempt to comply with the rules or regulations or to exercise ordinary and reasonable care in the preparation of a tax return.

It also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly.

Negligence is strongly indicated where:

  • You fail to include income shown on an information return or on your income tax return.
  • You fail to make a reasonable attempt to ascertain the accuracy of a deduction, credit or exclusion on a return, which would seem to a reasonable person to be too good to be true.
  • A partner fails to treat partnership items on his or her return in a manner that is consistent with the treatment of the items by the partnership.
  • A shareholder fails to treat S corporation items on his or her return in a manner that is consistent with the treatment of the items on the S corporation’s return.

Disregard: includes any careless, reckless or intentional disregard of the rules or regulations. A disregard is:

  • Careless if you do not exercise reasonable diligence in determining the accuracy of a return position that is contrary to a rule or regulation.
  • Reckless if you make little or no effort to determine whether a rule or regulation exists.
  • Intentional if you ignore a rule or regulation.

The following can be indications of negligence:

  • Unreported or understated income.
  • Significantly overstated deductions or credits.
  • Careless, improper or exaggerated deductions.
  • Deductions that are misrepresented or mis-categorized to conceal the true nature of the deduction.
  • Items that are unexplainable.
  • Inadequate books and records.
  • Substantial errors on an issue that the IRS adjusted in a prior year.
  • Incorrect or incomplete information provided to tax preparer.

About John R. Dundon II EA

John R. Dundon II EA - President Taxpayer Advocacy Services, Inc.

I am a life long student of the US Tax Code

Enrolled Agent # 00085353EA

IRS Practitioner ID # P00605639

IRS Certifying ITIN Acceptance Agent

Fellow - National Tax Practice Institute

My professional focus is to bring clarity to the US Tax Code for taxpayers everywhere.  I am a problem solver and a protector of taxpayer’s rights. I monitor federal and state taxing authorities and report on relevant tax topics in this well subscribed tax blog using plain terms for general understanding – subscriptions are complimentary.

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