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We conclude that petitioners did not establish their right
to more deductions or cost of goods sold than respondent allowed
for 1989 and 1990.
D. Self-Employment Tax
Respondent determined that petitioners are liable for self-
employment tax under section 1401 and that they may deduct one-
half of the self-employment tax they paid under section 164(f).
Petitioners concede that they were each self-employed. We
sustain respondent's determination on this issue.
E. Whether Petitioners Are Liable for the Accuracy-Related
Penalty Under Section 6662(a)
Respondent determined that petitioners are liable for the
accuracy-related penalty for negligence for 1989 and 1990 under
section 6662(a) and (c). Petitioners contend that they are not
liable for the accuracy-related penalty for negligence. We
disagree.
Taxpayers are liable for a penalty equal to 20 percent of
the part of the underpayment to which section 6662 applies. Sec.
6662(a). Negligence is a lack of due care or failure to do what
a reasonable and ordinarily prudent person would do under the
circumstances. Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th
Cir. 1984), affg. 79 T.C. 714 (1982); Neely v. Commissioner, 85
T.C. 934, 947 (1985). For purposes of section 6662(a),
negligence is a failure to reasonably attempt to comply with the
Internal Revenue Code. Sec. 6662(c). The accuracy-related
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