Reasonableness, First Impression, and the Accuracy-Related Penalty: Neonatology Associates v. Commissioner
In Neonatology Associates v. Commissioner, the Tax Court held, inter alia, that contributions to a voluntary employees’ beneficiary association (VEBA) were not deductible in excess of the cost of life insurance because they were disguised constructive distributions. The Tax Court also held that the taxpayers were liable for accuracy-related penalties for negligence or intentional disregard of the rules under section 6662(a). The court concluded that the taxpayers were negligent because they did not prove that reliance on an advisor was reasonable.Part I of this Note summarizes the background of the case in relation to the accuracy-related penalties issue. Part II discusses the decision of the Tax Court. Part III analyzes the Tax Court’s application of the reasonableness test and concludes that while the court was correct, under amended Rule 142, a different application of the test will result in future cases falling under a new section7491. Part III argues that the court’s holding that a case of first impression does not negate imposition of the negligence penalty when the requirements of negligence have been met is consistent with case law.