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or law that is reasonable in light of the experience, knowledge,
and education of the taxpayer may indicate reasonable cause and
good faith. See Remy v. Commissioner, T.C. Memo. 1997-72.
For the 1997 tax year, respondent determined that
petitioners are liable for an accuracy-related penalty
attributable to a substantial understatement of tax or, in the
alternative, due to negligence or disregard of rules or
regulations. Petitioners have conceded that they are not
entitled to $30,245 in itemized deductions relating to NOL
carryovers ($28,036) and certain taxes ($2,209) claimed on
Schedule A of their 1997 tax return. With regard to respondent’s
determination that petitioners were negligent and disregarded
rules and regulations, respondent argues that he has met his
burden of production under section 7491(c) through petitioners’
above concessions, along with evidence in the record indicating
that petitioners were experienced in business affairs. Further,
respondent contends that because petitioners have failed to
introduce any evidence to indicate that they were not negligent,
petitioners have failed to meet their burden of proof, which they
retain despite the application of section 7491(c).
Respondent has shown that petitioners have failed to keep
adequate books and records or to substantiate properly the items
in question. Such a failure in the instant case is evidence of
negligence. See sec. 1.6662-3(b), Income Tax Regs.
Consequently, we conclude that respondent has met his burden of
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