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P&G’s NOL should be reduced by the amounts that would have been
absorbed by the carryback of the losses to pre-loss years.6
III. Accuracy-Related Penalty Under Section 6662
Respondent also determined that petitioner was negligent and
liable for a penalty under section 6662(a) and (b)(1) for the
year at issue. Section 6662(a) and (b)(1) imposes an accuracy-
related penalty equal to 20 percent of an underpayment that is
attributable to negligence or disregard of rules or regulations.
Negligence has been defined as a “lack of due care or a
failure to do what a reasonable person would do under the
circumstances.” Leuhsler v. Commissioner, 963 F.2d 907, 910 (6th
Cir. 1992), affg. T.C. Memo. 1991-179. Respondent’s
determination of negligence is presumed correct, and petitioner
bears the burden of showing that respondent’s determination is
erroneous. See Rule 142(a). Therefore, petitioner must prove
that it was not negligent; i.e., that it made a reasonable
attempt to comply with the provisions of the Internal Revenue
Code and that it was not careless, reckless, or in intentional
disregard of rules or regulations. See sec. 6662(b) and (c). We
find that petitioner was negligent for deducting the advanced
litigation costs as ordinary and necessary business expenses and
6 To the extent we have not addressed certain other
arguments made by petitioner, we found them to be wholly without
merit.
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