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Petitioners have the burden of proving that they were not
negligent. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
Section 6653(a)(1)(A) (and section 6653(a)(1)) imposes an
addition to tax equal to 5 percent of the underpayment of tax if
any part of the underpayment is due to negligence or intentional
disregard of rules or regulations. Section 6653(a)(1)(B) imposes
an additional liability of 50 percent of the interest due on the
underpayment of tax attributable to negligence or intentional
disregard of rules or regulations. Beginning in 1989, taxpayers
are liable for a penalty equal to 20 percent of the part of the
underpayment attributable to negligence. Secs. 6662(a), (b)(1).
Negligence includes a 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. Sec. 6662(c). Negligence is a lack of due care or
failure to do what a reasonable and ordinarily prudent person
would do under the circumstances. Zmuda v. Commissioner, 731
F.2d 1417, 1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982); Neely
v. Commissioner, supra.
Petitioners argue that petitioner husband reasonably
believed that he had no taxable income in 1987, and that in fact,
if his personal activities are combined with Americana's, he had
a net operating loss for the year.
Petitioners contend that petitioner husband's income in 1988
was nominal since they had no taxable gain on the sale of their
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