National Industrial Investors, Inc. - Page 31

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                  Respondent determined accuracy-related penalties for                                 
            negligence under section 6662(a) in the amounts of $2,457 and                              
            $2,450 for 1989 and 1990, respectively.  These penalties arose                             
            from disallowed deductions.  Respondent asserted by amended                                
            pleadings an additional $15,182 to the accuracy-related penalty                            
            for 1990.  Respondent based this additional penalty on unreported                          
            income from 1990.  While petitioner bears the burden of proof as                           
            to the penalties as determined by respondent in the deficiency                             
            notice, respondent bears the burden of proof under Rule 142(a)                             
            for the additional penalty.                                                                
                  Negligence, for the purpose of section 6662(a), includes any                         
            failure to make a reasonable attempt to comply with the                                    
            provisions of the Internal Revenue Code.  Sec. 6662(c).                                    
            Petitioner destroyed books and records needed to prove its net                             
            operating losses, failed to maintain records necessary to                                  
            substantiate its deductions, and mixed up the nondeductible                                
            mileage of one car with the deductible mileage of another.                                 
            Petitioner is liable for negligence to the extent that the                                 
            deductions that we have denied result in an underpayment for each                          
            of the years in issue.                                                                     
                  With respect to the additional penalty for 1990, however,                            
            respondent has failed to prove negligence.  Petitioner's                                   
            subsidiary, Far Western, an accrual basis taxpayer, performed                              
            services for its client, IML, sometime in the mid-1980s.  The                              

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