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understatement of income tax. See sec. 6662(a), (b)(1), and
(b)(2). “Negligence” has been defined as the failure to do what
a reasonable and ordinarily prudent person would do under the
circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
The term “disregard” includes any careless, reckless, or
intentional disregard of rules or regulations. Sec. 6662(c). An
understatement is “substantial” if it exceeds the greater of
$5,000 or 10 percent of the tax required to be shown on the
return. Sec. 6662(d)(1) and (d)(2). Respondent’s determination
that petitioners were negligent is presumptively correct, and the
burden is on petitioners to show a lack of negligence. See Hall
v. Commissioner, 729 F.2d 632, 635 (9th Cir. 1984), affg. T.C.
Memo. 1982-337. The accuracy-related penalty applies unless
petitioners demonstrate that there was reasonable cause for the
underpayment and that they acted in good faith with respect to
the underpayment. See sec. 6664(c).
Petitioners have not established that their underpayments
for 1995 and 1996 were due to reasonable cause or a lack of
negligence. Accordingly, we hold that petitioners are liable for
the accuracy-related penalty for 1995 and 1996.
Decision will be entered
under Rule 155.
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Last modified: May 25, 2011