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OPINION
1. Additions to Tax Under Sections 6653(a) and 6653(a)(1) and (2)
Section 6653(a) (and, beginning with taxable year 1981,
section 6653(a)(1)) provides for an addition to tax equal to 5
percent of any underpayment if any part of the underpayment is
due to negligence or intentional disregard of rules and
regulations. Section 6653(a)(2) (beginning with the tax year
1981) provides for an addition to tax equal to 50 percent of the
interest payable on the deficiency with respect to the portion of
the underpayment which is attributable to negligence or
intentional disregard of rules and regulations.
Negligence under sections 6653(a) and 6653(a)(1) and (2) is
the lack of due care or the failure to act as a reasonable person
would act under the same circumstances where there is a legal
duty to act. See Neely v. Commissioner, 85 T.C. 934, 947 (1985).
Petitioners bear the burden of proving that no part of the
underpayments for the years at issue is due to negligence or
intentional disregard of rules and regulations. See Rule 142(a);
Bixby v. Commissioner, 58 T.C. 757 (1972).
In this case, the high writeoffs generated by the FTI/Merit
programs were reflected as consistent annual losses of hundreds
of thousands of dollars. The losses approached, and often
exceeded, petitioners' income from their two businesses. Write-
offs of this magnitude should have alerted petitioners that their
deductions were, at best, questionable. See Collins v.
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Last modified: May 25, 2011