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B. Negligence
Section 6653(a)(1) imposes 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 disregard of rules or
regulations. Section 6653(a)(1) applies to tax returns with a
due date prior to December 31, 1989. The section was repealed
December 31, 1989, and recodified in section 6662. Section
6662(a) imposes a penalty in an amount equal to 20 percent of the
portion of underpayment which is attributable to negligence or
disregard of rules or regulations.
"Negligence" is defined as the "lack of due care or failure
to do what a reasonable and ordinarily prudent person would do
under the circumstances." Neely v. Commissioner, 85 T.C. 934,
947 (1985) (quoting Marcello v. Commissioner, 308 F.2d 499, 506
(5th Cir. 1967)). Negligence includes any 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, including any failure by the
taxpayer to keep adequate books and records or to substantiate
items properly. Secs. 6653(a)(3), 6662(c); sec. 1.6662-3(b)(1),
Income Tax Regs. "Disregard" includes any careless, reckless, or
intentional disregard of rules or regulations. Secs. 6653(a)(3),
6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.
Petitioners argue that they should not be liable for the
negligence penalty because they relied on their advisers.
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