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Petitioners acknowledge their failure to keep adequate
records in support of their claimed deductions for expenditures
subject to the substantiation requirements of section 274(d),
e.g., travel and entertainment expenses (including meals with
clients), and they concede that the accuracy-related penalty
applies to any underpayment attributable to deduction
disallowances with respect to such expenditures. They argue,
however, that they made “a good-faith attempt to maintain proper
documentation in accordance with applicable rules and
regulations” as regards the other section 162 expenses, and that
the penalty should not apply to any underpayment attributable to
the disallowance of deductions attributable to those expenses.
We note that petitioners have conceded all or a portion of
every deduction challenged by respondent, not merely the
deductions subject to section 274(d). Moreover, we have found
that petitioners’ records fail to sustain a large portion of the
deductions remaining in issue. Under those circumstances, we
sustain the negligence penalty for the whole of petitioners’
underpayment of tax.
To reflect the foregoing,
Decision will be entered
under Rule 155.
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