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negligence or disregard of rules or regulations. Sec. 6662(a)
and (b)(1). “Negligence” is defined as any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code, and the term “disregard” includes any careless,
reckless, or intentional disregard. Sec. 6662(c). A position
with respect to an item is attributable to negligence if it lacks
a reasonable basis. Sec. 1.6662-3(b)(1), Income Tax Regs.
Moreover, taxpayers are required to keep adequate books and
records sufficient to establish the amounts of deductions or
other items required to be shown on their returns. Failure to
maintain adequate books and records or to substantiate items
properly also constitutes negligence. Id.
Section 6664(c)(1) provides that the penalty under section
6662(a) shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer’s
position with respect to that portion and that the taxpayer acted
in good faith with respect to that portion. Sec. 6664(c)(1).
The determination of whether a taxpayer acted with reasonable
cause and good faith within the meaning of section 6664(c)(1) is
made on a case-by-case basis, taking into account all the
pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income
Tax Regs.
After reviewing the record and considering our holdings on
the claimed deductions, we find that petitioners have not proved
that they acted in good faith with respect to the underpayment of
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Last modified: May 25, 2011