B. Albert and Betty M. Holowinski - Page 10

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          profit on individual items of glassware, when the activity is               
          viewed in its entirety, petitioners did not engage in the antique           
          glassware sales activity for profit.                                        
          B. Penalties                                                                
               Section 6662(a) and (b)(1) impose a penalty equal to 20                
          percent of any portion of an underpayment 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).             
          Section 6664(c)(1) provides that no penalty shall be imposed                
          under section 6662(a) with respect to any portion of an                     
          underpayment if it is shown that there was a reasonable cause for           
          such portion and the taxpayer acted in good faith.  Whether the             
          taxpayer acted with reasonable cause and in good faith is                   
          determined on a case-by-case basis taking into account all of the           
          pertinent facts and circumstances.  Remy v. Commissioner, T.C.              
          Memo. 1997-72.  Relevant factors include the taxpayer's efforts             
          to assess his or her proper tax liability, the knowledge and                
          experience of the taxpayer, and reliance on the advice of a                 
          professional, such as an accountant.  Drummond v. Commissioner,             
          T.C. Memo. 1997-71.  An honest misunderstanding of fact or law              
          that is reasonable in light of the experience, knowledge, and               
          education of the taxpayer may indicate reasonable cause and good            
          faith.  Remy v. Commissioner, supra.                                        

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