IRC 6662

The Tax Court held in Lucell Trammer, III & Sharonda M. Trammer v. Comm’r of Internal Revenue, Docket No. 6615-22, issued March 14, 2023 that the taxpayers had met the reasonable cause exception of IRC Section 6664(c)(1) that provides relief from the accuracy related penalties assessed against them under IRC Section 6662.  The taxpayers filed returns for 2019 and 2020 – taking their receipts to a return preparer who decided how and where to report items on their returns.  As it turned out, some personal expenses, like mortgage interest, were reported multiple times.  Some personal expenses were claimed as business expenses. Ultimately, the IRS issued a notice of deficiency assessing tax and accuracy related penalties under IRC 6662(a). The Court indicated that relief from an accuracy-related penalty only applies if the taxpayers’ reliance on the return preparer meets Treasury Regulation Section 1.6664-4(b), as follows: (1) the advisor was a competent professional who had sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the advisor, and (3) the taxpayer actually relied in good faith on the advisor’s judgment.  Though the taxpayer was held liable for the tax adjustment, the Court ruled that the accuracy related penalties would not apply to the years at issue.