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Revenue laws or to exercise ordinary and reasonable care in that
respect. Sec. 6662(c). Negligence is a lack of due care or
failure to do what a reasonable and ordinarily prudent person
would do under the circumstances. Zmuda v. Commissioner, 731
F.2d 1417, 1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982); Neely
v. Commissioner, supra.
We found that the covenant had economic significance, and
that the value of the covenant was $324,100, nearly 85 percent of
the $383,400 value petitioner claimed on its return. Given the
inexact science of valuation, we conclude that petitioner is not
liable for the addition to tax for negligence.
b. Valuation Overstatement
Respondent determined that petitioner overstated the value
of the covenant by more than 250 percent and asserted the 30
percent addition to tax under section 6659(b) for petitioner's
tax year ended June 30, 1989. A valuation overstatement occurs
where the value or adjusted basis of property reported on a tax
return is 150 percent or more of the value or adjusted basis that
is "determined to be the correct amount". Sec. 6659(c).
We conclude that the section 6659 addition to tax does not
apply to petitioner because 150 percent of the correct value of
the covenant ($324,100) is $468,150, and petitioner reported a
value of $383,400.
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