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of deficiency with respect to all other matters. Petitioners
claim, however, that they were not negligent, that they reasonably
relied on the advice of experts, and that there was substantial
authority for their position.
Sections 6653(a)(2) and 6653(a)(1)(B) impose an addition to
tax of 50 percent of the interest on the portion of an underpayment
of tax attributable to negligence or intentional disregard of rules
or regulations. Negligence is defined as the failure to exercise
the due care that a reasonable, prudent person would exercise under
similar circumstances. Zmuda v. Commissioner, 731 F.2d 1417, 1422
(9th Cir. 1984), affg. 79 T.C. 714 (1982); Neely v. Commissioner,
85 T.C. 934, 947 (1985).
Reliance on professional advice, by itself, is not an absolute
defense to negligence. A taxpayer first must demonstrate that his
reliance was reasonable. Freytag v. Commissioner, 89 T.C. 849, 888
(1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868
(1991). Here, petitioners failed to do so.
Petitioner engaged in sham transactions. Petitioner
participated in the backdating of documents and in highly
questionable transactions. A prudent person would not have
believed that these purported transactions served a purpose other
than tax avoidance.
We conclude that petitioners were negligent and did not
reasonably rely on the advice of experts. Consequently,
petitioners are liable for the additions to tax under sections
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