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Negligence includes any careless, reckless, or intentional
disregard of rules or regulations, any failure to make a
reasonable attempt to comply with the provisions of the law, and
any failure to exercise ordinary and reasonable care in the
preparation of a tax return. Neely v. Commissioner, 85 T.C. 934
(1985).
Under section 6662(a), an understatement is "substantial" if
the understatement exceeds the greater of 10 percent of the tax
required to be shown on the return for the taxable year, or
$5,000 ($10,000 in the case of a corporation other than an S
corporation or a personal holding company). An understatement of
tax is the excess of the amount required to be shown on the
return over the amount shown on the return, reduced by any
rebates.
Section 6664(c)(1) provides that no penalty shall be imposed
with respect to any portion of an underpayment if it is shown
that there was a reasonable cause for such portion, and that the
taxpayer acted in good faith with respect to such portion. The
record here shows that at the time the divorce agreement was
signed petitioner had two attorneys. He asked one of these
attorneys in the presence of the other whether, under the
agreement, he would be entitled to deduct the payments made to
his ex-wife as alimony, stating that he would sign the agreement
if the alimony was deductible by him. His attorney assured him
that the payments would be deductible by him under the agreement,
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Last modified: May 25, 2011