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or disregard of rules or regulations. See sec. 6662(b)(1).
Negligence is the lack of due care or failure to do what a
reasonable and ordinarily prudent person would do under the
circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
The term “disregard” includes any careless, reckless, or
intentional disregard. See sec. 6662(c).
However, section 6664(c) provides that no penalty shall be
imposed with respect to any portion of an underpayment if it is
shown that there was reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.
The determination of whether a taxpayer acted with reasonable
cause and in good faith is made on a case-by-case basis, taking
into account all pertinent facts and circumstances. See sec.
1.6664-4(b)(1), Income Tax Regs. Thus, respondent must prove
that a portion of the underpayment is attributable to negligence
and that petitioners did not act with reasonable cause and in
good faith.
Petitioners are not sophisticated with regard to income tax
laws and had their return prepared by H & R Block. While
petitioners disclosed to their preparer that they had income from
Ortega and that there was a dispute about the correct amount of
income earned, petitioners knew the amount of income earned and
paid from Ortega, as well as their expenses. Petitioner was
involved in a dispute with Ortega over the amount of his income
and had to file an ultimately unsuccessful lawsuit against Mr.
Ortega. However, that lawsuit was resolved in 1995, but
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