Opinion ID: 167170
Heading Depth: 2
Heading Rank: 8

Heading: Honest Misunderstanding of Fact

Text: 81 Last, the Van Scotens argue that Mr. Hoyt's fraud, coupled with other factors, caused them to have an honest misunderstanding of fact. Section 6664(c) of the Tax Code provides an exception to § 6662(a)'s addition to tax for any portion of an underpayment if the taxpayer can show that there was a reasonable cause for, and the taxpayer acted in good faith with respect to, that portion. Treas. Reg. § 1.6664-4(a). The determination of whether a taxpayer is entitled to the exception is made on a case-by-case basis, taking into account all pertinent facts and circumstances. Id. § 1.6664-4(b)(1). Reasonable cause and good faith might be indicated by an honest misunderstanding of fact or law that is reasonable in light of the experience, knowledge, and education of the taxpayer, but reasonable cause and good faith is not necessarily indicated by reliance on facts that, unknown to the taxpayer, are incorrect. Id. The Tax Court rejected the Van Scotens' honest mistake of fact argument, finding that whether or not [they] had a `mistake of fact' does not alter our conclusion that [their] actions in relation to their investment and the tax claims were objectively unreasonable. T.C. Memo at 32-33, 2004 WL 2785918. [W]e will review the tax court's factual determinations of whether a taxpayer qualifies for the reasonable cause exception for clear error. Estate of True v. Comm'r, 390 F.3d 1210, 1244 (10th Cir.2004). 82 The Tax Court did not clearly err in its determination that the Van Scotens could not rely on the reasonable cause exception. Although the determination of whether a taxpayer is entitled to the exception is made on a case-by-case basis taking into account all the pertinent facts and circumstances, the most important is the extent of the taxpayer's effort to assess the taxpayer's proper tax liability. Treas. Reg. § 1.6664-4(b)(1). As discussed, the record reflects that the Van Scotens made little, if any, effort to assess the their proper tax liability given the mounting evidence indicating that their tax treatment of DSBS 87-C may be incorrect. Instead, they relied solely on the advice that they received from Mr. Hoyt and his organization, the very people who were receiving the bulk of the tax savings generated by their claimed refunds. According due weight to the Van Scotens efforts to assess their proper tax liability, we cannot conclude that the Tax Court clearly erred in finding that the Van Scotens did not qualify for the reasonable cause exception. 83 AFFIRMED.