- 5 -
and the term 'disregard' includes any careless, reckless, or
intentional disregard."
The accuracy-related penalty will not be imposed with
respect to any portion of an underpayment if it is shown that
there was a reasonable cause for such portion and that the
taxpayer acted in good faith with respect to such portion. Sec.
6664(c)(1). The determination of whether a taxpayer acted with
reasonable cause and in good faith depends upon the facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The most
important factor is the extent of the taxpayer's effort to
determine the taxpayer's proper tax liability. Id.
Respondent determined that petitioners' underpayments of tax
were due to negligence or intentional disregard of rules or
regulations. Respondent since has conceded the portions of the
penalties related to the COD issue. The remaining portions of
the penalties relate to the income conceded by petitioners; i.e.,
the gain on the sale of stock in Epoch Management, Inc.
Petitioners argue that they were not negligent, but merely
mistaken, in their reporting position with respect to the Epoch
Management, Inc. stock. They state in their brief that they
concluded they could recover all of their basis before reporting
any gain. They also allege that their failure to include the
gain was inadvertent, in view of the amounts of the adjustment
resulting from this omission ($60,077 and $5,763 for 1990 and
1991, respectively) as compared to the total income reported
($778,781 and $1,215,732, respectively).
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