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negligence (i.e., an unreasonable failure to comply with the
provisions of the Code or a careless, reckless, or intentional
disregard of rules or regulations) rather than to fraud (i.e., an
intent to evade a tax known or believed to be owing).7 To be
sure, petitioners deposited into their bank accounts all of the
unreported income attributable to their rental properties and
never attempted to hide their receipt of that income. Moreover,
as even respondent acknowledges, petitioners’ failure to report
all of their rental income on their original returns was due to
the fact that they estimated that income rather than attempted
earnestly to ascertain it by reference to the bank statements.
As to the fact that petitioners commingled their personal
funds with the funds of Nanny’s, we do not view this fact in
light of the record as a whole as establishing the requisite
fraudulent intent. Petitioners’ commingling of the funds was
simply a continuance of that practice from the immediate prior 4
years in which they operated Nanny’s as a sole-proprietorship,
rather than as a blatant attempt to avoid Federal income taxes.
Moreover, at the end of the relevant years, Mr. Mason, their
longtime accountant who was knowledgeable as to both Nanny’s
7 We stop short of opining on whether petitioners’
underpayment is actually attributable to negligence for purposes
of the additions to tax under sec. 6653(a). Respondent has
neither determined nor pleaded as an alternative to the fraud
determination that petitioners are liable for those additions for
any of the subject years.
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