Negligence vs. Disregard: The Differences
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.
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.
I am a life long student of the US Tax Code
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