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portion of its alleged costs. These facts do not present a valid
business reason for Eastimpex to make payments under the 1986
Agreement.
Additions to Tax and Penalty
Respondent determined additions to tax under section
6653(a)(1)(A) and (B) against individual petitioners for 1987
attributable to their receipt of constructive dividends and
against Eastimpex for taxable year ending March 31, 1988,
attributable to its improper treatment of the deposited amounts
as cost of goods sold. Section 6653(a)(1)(A) imposes an addition
to tax of 5 percent of any underpayment attributable to
negligence or disregard of rules or regulations. If that
addition applies, section 6653(a)(1)(B) imposes an addition to
tax equal to 50 percent of the interest payable on the portion of
the understatement of tax attributable to negligence. Respondent
also determined an addition to tax against individual petitioners
under section 6653(a)(1) for 1988.
Negligence is the failure to do what a reasonable and
ordinarily prudent person would do under the circumstances.
Neely v. Commissioner, 85 T.C. 934, 947 (1985). "Disregard"
includes any careless, reckless, or intentional disregard of
rules or regulations. Sec. 6653(a)(3). Petitioners bear the
burden of proving that the additions to tax do not apply. Rule
142(a); Luman v. Commissioner, 79 T.C. 846, 860-861 (1982).
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