- 69 -
Issue 3. Section 6653(a) Additions to Tax
We must additionally decide whether each petitioner is liable
for an addition to tax under section 6653(a) for each of the years
at issue. Section 6653(a) provides that if any part of any
underpayment is due to negligence or intentional disregard of rules
or regulations, there shall be added to the tax an amount equal to
5 percent of the underpayment. Negligence is a lack of due care or
the failure to do what a reasonable and ordinarily prudent person
would do under the circumstances. Krumhorn v. Commissioner, 103
T.C. at 56; Freytag v. Commissioner, 89 T.C. at 887.
In this case, Mr. Keeler, presumably an experienced trader,
repeatedly invested in untried types of transactions with a small,
new, and inexperienced company. He invested in a program whose
promoters invented and operated the markets involved and who created
the prices for the market's commodities by computer, rather than by
market principles. He has demonstrated no objective basis for
believing that the Merit programs possessed economic substance or
that he proceeded with a primarily for-profit motive. Mr. Keeler
nevertheless did not hesitate to claim enormous tax deductions and
deferrals.
Mr. Keeler urges that he studied the PPM's and gave them to his
accountants and talked to Merit's principals. We are not persuaded
that these actions suffice to avoid the negligence penalty.
Page: Previous 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 NextLast modified: May 25, 2011