Taxpayers' Reliance on Professional Tax Advice

Examining the Penalties under IRC Section 6662

Ray A. Knight, JD, CPA, and Lee G. Knight, PhD

Most taxpayers do not know or understand tax law, and thus cannot handle the reporting of complex taxable transactions. If taxable transactions are not reported correctly, the IRS may impose an accuracy-related penalty under Internal Revenue Code (IRC) section 6662. Historically, taxpayers have relied on tax advisors' advice to protect them from penalties. But the enactment of IRC section 6662A, which addresses tax shelters, raises the question of whether taxpayers can act with reasonable cause and in good faith by relying on the tax advice of professional tax advisors who are not tax promoters in order to avoid the imposition of penalties.