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C. Whether Petitioners Are Liable for the Penalty Under Section
6662 for Negligence
Respondent determined that petitioners are liable for the
accuracy-related penalty for negligence for 1992 and 1993 under
section 6662.
Taxpayers are liable for a penalty equal to 20 percent of
the part of the underpayment to which section 6662 applies. Sec.
6662(a). Section 6662 applies to an underpayment attributable to
negligence. Sec. 6662(b)(1). Negligence includes a failure to
make a reasonable attempt to comply with internal revenue laws or
to exercise ordinary and reasonable care in preparing a tax
return. Sec. 6662(c). The accuracy-related penalty does not
apply to any part of an underpayment if the taxpayer shows that
he or she had reasonable cause and acted in good faith. Sec.
6664(c)(1).
Petitioner employed and relied on a C.P.A. who had
represented petitioner in audits by respondent on the issue of
whether petitioner operated the horse activity for profit.
Petitioner's C.P.A. believed that petitioners properly deducted
petitioner's horse activity expenses. Petitioner had conducted
his horse racing and breeding activity for more than 30 years
when respondent audited petitioners in 1987 and made no changes.
We conclude that petitioners are not liable for the accuracy-
related penalty for negligence for deducting losses attributable
to petitioner's horse racing and breeding activity in 1992 and
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