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club in 1988 was for business, there is no evidence of what, if
any, business use was made of the country club in 1988.
Petitioners contend that, in any event, they are not liable
for additions to tax for negligence pursuant to section
6653(a)(1)(A) and (B) for the taxable year 1987 and pursuant to
section 6653(a)(1) for the taxable year 1988. Negligence is
defined as a lack of due care or a failure to do what a
reasonable and ordinarily prudent person would do under the
circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
Based on the record in this case, we find that petitioners
have failed to show that they were not negligent. Petitioner
failed to keep adequate records of expenditures, particularly
with regard to the activities at the country club. Petitioner
had lost or misplaced some of the receipts by the time of trial.
Petitioner admitted to making several mistakes in the records
that he did keep. We, therefore, find that petitioners were
negligent in keeping business records to verify the expenses of
the insurance business for the years at issue.
Petitioners also contest respondent's determination of
additions to tax under section 6661 for each of the years here in
issue. Section 6661(a) imposes an addition to tax of 25 percent
of the underpayment attributable to a substantial understatement
of income tax. An understatement is defined as the tax required
to be shown on the return less the tax shown on the return,
reduced by any rebates. Sec. 6661(b)(2). An understatement is
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