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III. Accuracy-Related Penalties
In the case of an underpayment of tax required to be shown
on a return, section 6662(a) and (b)(1) impose a penalty in the
amount of 20 percent of the portion of the underpayment that is
attributable to negligence or intentional disregard of the rules
or regulations (hereafter, simply, negligence). Negligence has
been defined as lack of due care or failure to do what a
reasonable and prudent person would do under like circumstances.
E.g., Hofstetter v. Commissioner, 98 T.C. 695, 704 (1992).
Negligence includes any failure to make a reasonable attempt to
comply with the provisions of the internal revenue laws or to
exercise ordinary and reasonable care in the preparation of a tax
return; it also includes any failure by the taxpayer to keep
adequate books and records or to substantiate items properly.
Sec. 1.6662-3(b)(1), Income Tax Regs.
Respondent determined penalties under section 6662(a) and
(b)(1), and petitioners assigned error to those determinations.
On brief, however, petitioners fail to identify those penalties
as an issue in this case. We assume that petitioners principally
rely on our finding no deficiencies in tax to avoid the
penalties. In that tactic, petitioners are not successful.
Respondent’s notices of deficiency do not particularize
petitioners’ negligence. On brief, respondent explains:
“[P]etitioners were negligent in claiming deductions for
management expenses that were solely based on petitioners’
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Last modified: May 25, 2011