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comply with the provisions of the Internal Revenue Code, and
"disregard" means any careless, reckless, or intentional disregard.
See sec. 6662(c). A substantial understatement of tax means an
understatement of tax that exceeds the greater of 10 percent of the
tax required to be shown on the tax return or $5,000. See sec.
6662(d)(1)(A).
No accuracy-related penalty is imposed with respect to any
portion of the understatement as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1).
Petitioners failed to establish that they were not negligent
in preparing their returns. In fact, the record establishes that
petitioners failed to maintain adequate books and records for their
bar/restaurant. Revenue Agent Bixler's reconstruction establishes
that Classic Pub's books and records were unreliable and
understated its income.
In sum, we hold that petitioners failed to exercise reasonable
care both in reporting Classic Pub's gross sales and in ensuring
the accuracy of their individual tax returns. Accordingly, we
sustain the section 6662(a) accuracy-related penalties with respect
to the years in issue.
In reaching our conclusion, we have considered all of
petitioners' arguments and, to the extent not discussed, conclude
that each of them is without merit.
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