George Georgiou and Judith Georgiou A.K.A. Judy Georgiou, et al. - Page 38

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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                                  
                  "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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