- 33 -
discussed in the negligence portion of this opinion, Part D,
infra, we do not think that petitioner acted with reasonable
cause and in good faith with respect to the substantial
understatement. Accordingly, we sustain respondent's
determination that petitioner is liable for the accuracy-related
penalty under section 6662(a) based on the understatement of
income tax for 1989.8
D. Negligence
In the notices of deficiency, respondent determined that
petitioner was liable for the accuracy-related penalty for
negligence for both 1989 and 1990.
Negligence may be indicated by the failure (1) to make a
reasonable attempt to comply with applicable provisions of the
Internal Revenue Code and the supporting regulations thereunder,
(2) to exercise ordinary and reasonable care in preparing a tax
return, (3) to keep adequate books and records, or (4) to
properly substantiate items. Sec. 1.6662-3(b) and (c), Income
Tax Regs. Negligence also may be indicated by 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).
8 In view of our conclusion, we find it unnecessary to
decide whether the plan or arrangement involved in the present
cases constituted a "tax shelter" within the meaning of sec.
6662(d)(2)(C)(iii). However, see infra note 9 and the associated
text.
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