Tax Court: No Penalties for Son of Boss Participants

In a memorandum opinion related to a division opinion we reported earlier this year, the Tax Court has found that underpayment and accuracy-related penalties asserted against investors in a “Son of Boss” tax shelter, did not apply to the participant taxpayers because they established reasonable cause under IRC § 6664(c)(1). However, the Court did sustain the government’s determination, which apparently was uncontested by the taxpayers, that they had underreported tax because of their involvement with the Son of Boss transactions.

The opinion offers a thorough discussion of the taxpayers’ conduct and the applicable standards for reasonable cause. The language and findings may provide useful guidance for taxpayers, and their counsel, seeking to avoid penalties by establishing reliance upon their advisors.

Read the entire opinion here:
Rawls v. Commissioner, T.C. Memo. 2012-340

Tax Court: Penalties Apply for Taxpayer Who Does Not Show Reliance on Tax Advice

In a reviewed opinion, the Tax Court has found that a sophisticated taxpayer (i.e., a hedge fund manager) could not avoid penalties by relying on the reasonable cause defense under Sec. 6664(c)(1) where the taxpayer presented no evidence that the omitted income was because he relied on advice given by the tax return preparer.

Read the opinion here:
Woodsum v. Commissioner, 136 T.C. No. 29 (2011)