Introduction

§ 6662 of the Internal Revenue Code (IRC) imposes an accuracy-related penalty (the ARP) on persons who have underpaid their income tax as a result of certain enumerated circumstances including, but not limited to, negligence and substantial understatement of income tax. According to the National Taxpayer Advocate’s Annual Reports to Congress from 2013 to 2018, the application of this accuracy-related penalty has been the most litigated federal tax issue over the last several years.¹ Taxpayers can be excepted from the ARP in most cases if they show that there was reasonable cause for the underpayment and that they acted in good faith with

respect to it, pursuant to § 6664(c). This exception is often called the “reasonable cause and good faith” defense or just “reasonable cause.”

After reviewing key concepts and legislation relating to the ARP and the reasonable cause and good faith defense, this primer focuses on identifying and discussing the factors driving the determination of whether the reasonable cause and good faith exception applies.