American Underwriters, Inc. - Page 31

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               Respondent also determined additions to tax for negligence             
          under section 6653(a)(1)(A) and (B) (for 1987) and section                  
          6653(a)(1) (for 1988), asserting that petitioner's underpayment             
          of income taxes in each year was due to negligence or intentional           
          disregard of rules or regulations.  For the respective years,               
          section 6653(a)(1)(A) and section 6653(a)(1) impose an addition             
          to tax equal to 5 percent of the underpayment if any part of the            
          underpayment is due to negligence.  For petitioner's 1987 taxable           
          year, section 6653(a)(1)(B) imposes an addition to tax equal to             
          50 percent of the interest payable on the amount of the                     
          underpayment that is due to negligence.  With respect to all of             
          these additions to tax, negligence includes a lack of due care or           
          a failure to do what a reasonable and ordinary prudent person               
          would do under the circumstances.  Neely v. Commissioner, 85 T.C.           
          934, 947 (1985).  Petitioner bears the burden of proving that               
          respondent's determination of negligence is erroneous.  Rule                
          142(a); Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972).                 
               Following our review of the record, and in light of the                
          persuasive testimony of Mr. Roven and Ms. Martin, we hold that              
          petitioner is not liable for any of the additions to tax                    
          determined by respondent.6  We believe that petitioner (through             
          its management) acted as a reasonable and prudent person would              


               6 This holding applies to the additions to tax as they                 
          relate to both the determinations at issue and the determinations           
          that were conceded by petitioner.                                           




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