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Section 6662(a) imposes a penalty for the underpayment of
tax in an amount equal to 20 percent of the underpayment if the
underpayment is attributable to negligence or disregard of rules
or regulations or to any substantial understatement of income
tax.
"Negligence", as used in section 6653(a)(1), is defined as
the "lack of due care or failure to do what a reasonable and
ordinarily prudent person would do under the circumstances."
Neely v. Commissioner, 85 T.C. 934, 947 (1985). 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,
including any failure by the taxpayer to keep adequate books and
records or to substantiate items properly. Secs. 6653(a)(3),
6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. "Disregard"
includes any careless, reckless, or intentional disregard of
rules or regulations. Secs. 6653(a)(3), 6662(c); sec, 1.6662-
3(b)(2), Income Tax Regs.
For purposes of sections 6661 and 6662(a), an understatement
is substantial if it exceeds the greater of 10 percent of the
correct tax or $5,000 or, in the case of a corporate taxpayer,
$10,000. Secs. 6661(b)(1)(A) and (B), 6662(d)(1)(A) and (B).
Where an item is not attributable to a tax shelter, the
understatement may be reduced by the portion attributable to such
item and the addition to tax accordingly reduced if the
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