Mr. Stanhope has an MBA degree from Stanford University and has been in business for himself for 18 years. The revenue agent who audited his Form 1040 discovered a glaring error resulting in a $16,200 understatement of tax. When the agent questioned him about the error, Mr. Stanhope just shrugged his shoulders and offered no logical explanation.
a. If the error resulted from Mr. Stanhope’s intentional disregard of a tax rule, compute the negligence penalty.
b. Should the fact of Mr. Stanhope’s education and business experience influence the agent’s decision to impose the negligence penalty?