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Section 6653(a)(1) imposes an addition to tax if any portion
of an underpayment is due to negligence or intentional disregard
of rules or regulations. Section 6653(a)(2) imposes an addition
to tax in an amount equal to 50 percent of the interest due on
the portion of the underpayment attributable to negligence.
Negligence is defined as the failure to exercise the
due care that a reasonable and ordinarily prudent person would
employ under the circumstances. Neely v. Commissioner, 85 T.C.
934, 947 (1985). Thus, to avoid imposition of the addition to
tax, petitioner must prove that her actions in connection with
the deductions and credits from the plastics recycling venture
were reasonable in light of her experience and the nature of the
investment. See Henry Schwartz Corp. v. Commissioner, 60 T.C.
728, 740 (1973); Lucas v. Commissioner, T.C. Memo. 1995-341.
The exact nature of the investment here is not clear from
the record. No prospectus or offering memorandum was introduced,
few facts on the nature of the investment were stipulated, and no
witnesses save for petitioner testified at trial.
We are able to determine from the stipulations, pleadings,
motions and responses of the parties that petitioner was an
indirect investor in a limited partnership that generated
deductions and credits based at least in part upon the value of
one or more plastics recycling machines.
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