- 42 -
While petitioners underreported some income and capital
loss, we are not convinced that it was due to fraud. It appears
that the underreporting was due to careless bookkeeping and
petitioners' difficult personal and financial circumstances,
which was negligent, but not fraudulent.
We conclude that respondent has not proven by clear and
convincing evidence that petitioner husband is liable for the
addition to tax for fraud under section 6653(b) for 1988 or
the penalty for fraud under section 6663(a) for 1989.
10. Additions to Tax
a. Late Filing
Petitioners filed their 1987 and 1989 returns late. A
taxpayer is liable for an addition to tax of up to 25 percent for
failure to timely file a Federal income tax return unless the
taxpayer shows that the failure was due to reasonable cause and
not willful neglect. Sec. 6651(a)(1). Petitioner bears the
burden of proving that his failure to file a timely return is due
to reasonable cause and not willful neglect. United States v.
Boyle, 469 U.S. 241, 245 (1985); Baldwin v. Commissioner, 84 T.C.
859, 870 (1985); Davis v. Commissioner, 81 T.C. 806, 820 (1983),
affd. without published opinion 767 F.2d 931 (9th Cir. 1985). To
prove reasonable cause, a taxpayer must show that he exercised
ordinary business care and prudence but nevertheless could not
file the return when it was due. Crocker v. Commissioner, 92
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