- 18 -
v. Commissioner, T.C. Memo. 1997-314, we found that each Sentinel
EPS recycler had a fair market value not in excess of $50,000,
and relied heavily on the overvaluation of the recyclers in
concluding that the taxpayer was negligent and liable for
accuracy-related penalties.
A. Section 6653(a)(1) and (2) Negligence
In these cases, respondent determined that petitioners were
liable for additions to tax for negligence under section
6653(a)(1) and (2) with respect to underpayments attributable to
petitioners’ investment in Masters. In each case, petitioners
contend that they were not negligent because: (1) They
reasonably relied in good faith upon the advice of advisers,
including a competent and experienced accountant, in deciding to
invest in Masters, and (2) they intended to make a profit from
their investment in Masters.
Section 6653(a)(1) and (2) imposes additions to tax if any
part of the underpayment of tax is due to negligence or
intentional disregard of rules or regulations. Negligence is
defined as the failure to exercise the due care that a reasonable
and ordinarily prudent person would exercise under the
circumstances. See Neely v. Commissioner, 85 T.C. 934, 947
(1985). The pertinent question is whether a particular
taxpayer’s actions are reasonable in light of the taxpayer’s
experience, the nature of the investment, and the taxpayer’s
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011