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The third issue for decision is whether petitioners are
liable for the section 6662(a) accuracy-related penalties for
1993 and 1994.
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment attributable to any one of various factors,
one of which is negligence or disregard of rules or regulations.
See sec. 6662(b)(1). "Negligence" includes any failure to make a
reasonable attempt to comply with the provisions of the internal
revenue laws or to exercise ordinary and reasonable care in the
preparation of a tax return. See sec. 6662(c); sec.
1.6662-3(b)(1), Income Tax Regs. It also includes any failure to
keep adequate books and records or to substantiate items
properly. See sec. 1.6662-3(b)(1), Income Tax Regs. "Disregard"
includes any careless, reckless, or intentional disregard of
rules or regulations. See sec. 6662(c); sec. 1.6662-3(b)(2),
Income Tax Regs.
Section 6664(c)(1), however, provides that the section
6662(a) penalty 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 of the
underpayment and that the taxpayer acted in good faith with
respect to that 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 the pertinent facts and
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