Estate of Ronald Busch, Deceased, Rochelle Busch, Executrix and Rochelle Busch, et al. - Page 24

                                       - 24 -                                         
               Section 6653(a)(1) imposes an addition to tax equal to 5               
          percent of the underpayment if any part of an underpayment of tax           
          is due to negligence or intentional disregard of rules or                   
          regulations.  Section 6653(a)(2) imposes an addition to tax equal           
          to 50 percent of the interest payable with respect to the portion           
          of the underpayment attributable to negligence or intentional               
          disregard of rules or regulations.                                          
               Negligence is defined as the failure to exercise the due               
          care that a reasonable and ordinarily prudent person would employ           
          under the circumstances.  Neely v. Commissioner, 85 T.C. 934, 947           
          (1985).  The question is whether a particular taxpayer's actions            
          in connection with the transactions were reasonable in light of             
          his experience and the nature of the investment or business.  See           
          Henry Schwartz Corp. v. Commissioner, 60 T.C. 728, 740 (1973).              
          When considering the negligence addition to tax, we evaluate the            
          particular facts of each case, judging the relative                         
          sophistication of the taxpayers, as well as the manner in which             
          they approached their investment.  McPike v. Commissioner, T.C.             
          Memo. 1996-46.  Compare Spears v. Commissioner, T.C. Memo. 1996-            
          341, with Zidanich v. Commissioner, T.C. Memo. 1995-382.                    
               When petitioners invested in the Partnerships, they had no             
          education or experience in plastics materials or plastics                   
          recycling, nor had any of them seen a Sentinel EPE recycler.                
          Petitioners contend that they were reasonable in claiming                   






Page:  Previous  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  Next

Last modified: May 25, 2011