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Sec. 6653(a)(1)(A) and (B). For petitioner's 1988 tax year, the addition to
tax is equal to 5 percent of the underpayment if any portion of the
underpayment is attributable to negligence or disregard of rules or
regulations. Sec. 6653(a). We have defined negligence in this context to
mean "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, 380 F.2d 499, 506 (5th
Cir. 1967)).
Petitioner failed to meet its burden of proving that the underpayments
were not due to negligence or disregard of rules or regulations. Petitioner
contends that it is not responsible for the section 6653(a) additions to tax
because it relied on a tax professional in creating the corporate sponsorship.
To bolster its argument, petitioner cites Ewing v. Commissioner, 91 T.C. 396
(1988), affd. without published opinion 940 F.2d 1534 (9th Cir. 1991). In
Ewing, the Tax Court declined to impose additions to tax under section 6653
where the taxpayers had "[relied] in good faith on the attorneys to formulate
and implement" an arrangement. Reliance on a professional, however, will not
shield a taxpayer from liability where the transaction giving rise to the
deduction lacked substance or the expert's advice was ignored in material
respects and was vague. In the present case, Mr. Vitale received a general
letter from an attorney in California whom he had never met. There is no
evidence in the record that (1) explains what information Mr. Vitale provided
to the attorney or (2) indicates that the attorney either proposed or endorsed
a particular plan. Thus, the attorney did not "formulate and implement" a
plan, but appears merely to have provided broad comments on Mr. Vitale's idea.
We have found that the sponsorship arrangement was designed primarily to
benefit Mr. Vitale, not petitioner. Therefore, we hold that petitioner is
liable for the section 6653(a) additions to tax.
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