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activities, and the addition to tax for negligence or intentional
disregard of rules or regulations does not apply to underpayments
attributable to nonfraudulent activities. Therefore, respondent
agrees that for all tax years prior to 1986, even though the
negligence addition to tax was determined or asserted with
respect to nonfraudulent activities, the negligence addition to
tax is not applicable if fraud is held applicable for the years
prior to 1986. For tax years after 1985, the addition to tax for
fraud applies only to the underpayment in tax attributable to
fraud; therefore, a taxpayer may be held liable for the
negligence addition to tax on underpayments attributable to
nonfraudulent activities. Thus, with respect to Kanter, the
Court holds that the negligence addition to tax is not applicable
to Kanter's 1978 through 1984 tax years since the Court has held
that Kanter is liable for fraud for those years. The Court,
therefore, considers the negligence addition to tax relating to
nonfraudulent activities for Kanter's 1986 through 1989 tax
years. With respect to Ballard and Lisle, the parties agree that
the additions to tax asserted against them related only to the
Prudential issue. Since the Court has held that Ballard and
Lisle are subject to the fraud addition to tax with respect to
the Prudential activity, there are no additions to tax for
negligence as to Ballard and Lisle which are to be considered by
the Court.
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