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Respondent determined petitioners’ underpayments of tax are
attributable to negligence. Petitioners maintain they were not
negligent and that they reasonably relied in good faith on their
income tax return preparer. Petitioners bear the burden of
proving that the negligence penalty is inapplicable.23 See Rule
142(a); Welch v. Helvering, 290 U.S. 111 (1933); Bixby v.
Commissioner, 58 T.C. 757, 791-792 (1972).
Petitioners exhibited a lack of due care in determining their
proper income tax liability. They both failed to maintain records
to substantiate their entitlement to the deductions at issue and
to head of household filing status. In 1995, both claimed
deductions for expenses related to the Foster City residence when
they held neither legal or beneficial ownership of the residence.
Moreover, without any reasonable basis, they attributed to
themselves Fuad’s checks to Mahmoud totaling $17,500 in
considering their entitlement to deductions and head of household
filing status.
23 Although petitioners make no reference to sec. 7491(c),
which was enacted by the Internal Revenue Service Restructuring &
Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 685,
726, they appear to invoke its rule requiring the Secretary to
carry the burden of production with respect to additions to tax.
Sec. 7491(c), however, is only applicable to court proceedings
arising in connection with examinations commencing after July 22,
1998. Of the three notices of deficiency giving rise to this
case, two were issued prior to July 22, 1998 and one was issued
on Dec. 3, 1998. Petitioners do not contend, nor are we
persuaded by the evidence, that any of their examinations
commenced after July 22, 1998.
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