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Petitioners have failed to produce any evidence, except for
their own self-serving testimony, for an interest expense
deduction exceeding the $890 already allowed by respondent for
Mr. Margolis' business. We conclude that petitioners are not
entitled to the additional $890 interest expense deduction.
Issue (3) Accuracy-Related Penalty
Finally, we consider whether petitioners are liable for a
penalty under section 6662(a) for negligence or disregard of
rules or regulations.
Section 6662(a) and (b)(1) provides that if any portion of
an underpayment of tax is attributable to negligence or disregard
of rules or regulations, then there shall be added to the tax an
amount equal to 20 percent of the amount of the underpayment that
is so attributable. The term "negligence" includes any failure
to make a reasonable attempt to comply with the statute, and the
term "disregard" includes any careless, reckless, or intentional
disregard. Sec. 6662(c).
To the extent that petitioners have unreported self-
employment income,7 we hold that petitioners have failed to prove
that they made a reasonable attempt to comply with internal
revenue laws and acted with reasonable cause and in good faith.
See sec. 6664(c)(1). Indeed, given our holding that petitioners
failed to report a substantial amount of income, the evidence
7 Petitioners' unreported net earnings from self-employment
include the $14,191 amount as decided herein and the $14,180
amount as conceded by petitioners, less allowable deductions
conceded by respondent or allowed herein.
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