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The parties stipulated that the 1992 gift tax due from
Kathy, Sandra, and Diane is not paid. All elements necessary for
the imposition of liability under section 6324(b) are satisfied,
and we hold the Larry Trust, the John Trust, and the Duane Trust
are liable as transferees for the unpaid gift tax and penalties5
of Kathy, Sandra, and Diane, respectively.
As to the accuracy-related penalties, we first turn to
whether Larry, Kathy, John, and Sandra are liable for the 1993
amounts. Section 6662(a) and (b)(1) imposes a penalty equal to
20 percent of the portion of an underpayment that is attributable
to, among other things, negligence. Petitioners will avoid this
penalty if the record shows that they were not negligent; i.e.,
they made a reasonable attempt to comply with the provisions of
the Internal Revenue Code, and they were not careless, reckless,
or in intentional disregard of rules or regulations. See sec.
6662(c); Accardo v. Commissioner, 942 F.2d 444, 452 (7th Cir.
1991), affg. 94 T.C. 96 (1990); Drum v. Commissioner, T.C. Memo.
1994-433, affd. without published opinion 61 F.3d 910 (9th Cir.
1995). Negligence connotes a lack of due care or a failure to do
what a reasonable and prudent person would do under the
circumstances. See Allen v. Commissioner, 92 T.C. 1 (1989),
affd. 925 F.2d 348 (9th Cir. 1991); Neely v. Commissioner, 85
T.C. 934, 947 (1985). The accuracy-related penalty of section
5Our discussion on the accuracy-related penalty is set forth
below.
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