Katia V. and Peter Popov - Page 14

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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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