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experimentation expenditures under section 174. Respondent is
sustained on this issue.
B. Negligence
Respondent determined that petitioners are liable for
additions to tax for negligence or intentional disregard of rules
and regulations under section 6653(a)(1) and (2). Section
6653(a)(1) provides for an addition to tax in an amount equal to
5 percent of the underpayment if any part of the underpayment is
due to negligence or intentional disregard of rules and
regulations. Section 6653(a)(2) provides for an addition to tax
in an amount equal to 50 percent of the interest payable under
section 6601 with respect to that portion of an underpayment
attributable to negligence or intentional disregard of rules and
regulations.
Negligence is defined as the failure to exercise the due
care of a reasonable and ordinarily prudent person under like
circumstances. E.g., Allen v. Commissioner, 925 F.2d 348, 353
(9th Cir. 1991), affg. 92 T.C. 1 (1989); Sandvall v.
Commissioner, 898 F.2d 455, 458 (5th Cir. 1990), affg. T.C. Memo.
1989-189 and T.C. Memo. 1989-56; Forseth v. Commissioner, 845
F.2d 746, 749 (7th Cir. 1988), affg. 85 T.C. 127 (1985); Neely v.
Commissioner, 85 T.C. 934, 947 (1985). The question is whether a
particular taxpayer's actions in connection with the transaction
were reasonable in light of his experience and the nature of the
investment or business. See Henry Schwartz Corp. v.
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