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to determine what the basis of the ranch would be in the hands of
either petitioners or the P.C.
Additions to Tax
In the notice of deficiency, respondent determined that
petitioners are liable for additions to tax for negligence under
section 6653(a) and for substantial understatement of income tax
under section 6661.
For 1988, section 6653(a)(1) provides that, if any part of
an underpayment of tax is due to negligence or disregard of rules
or regulations, an amount equal to 5 percent of the underpayment
shall be added to the tax. For purposes of section 6653(a),
negligence is defined as a “lack of due care or failure to do
what a reasonable and ordinarily prudent person would do under
the circumstances.” Neely v. Commissioner, 85 T.C. 934, 947
(1985) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th
Cir. 1967), affg. in part and remanding in part 43 T.C. 168
(1964)). The taxpayer has the burden of proving that
respondent’s determination is erroneous. See Rule 142(a); Bixby
v. Commissioner, 58 T.C. 757, 791 (1972).
Petitioners assert that their actions were not negligent.
They argue that they were relying on the advice of their
accountants in determining what to report as income. While it is
true that a taxpayer may avoid liability for the addition to tax
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