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understatement). At trial, respondent also asserted that
petitioners were liable for a penalty under section 6673.
OPINION
Section 6662(a) Penalty
Section 6662(a) and (b)(1) imposes a penalty equal to 20
percent of the portion of an underpayment of income tax
attributable to negligence or disregard of rules or regulations.
Negligence is defined as “any failure to make a reasonable
attempt to comply with the provisions of * * * [the Internal
Revenue Code]”. Sec. 6662(c); see also Neely v. Commissioner, 85
T.C. 934, 947 (1985) (negligence is lack of due care or failure
to do what a reasonable and prudent person would do under the
circumstances). The term “disregard” includes “any careless,
reckless, or intentional disregard.” Sec. 6662(c). Disregard of
rules or regulations is careless if the taxpayer does not
exercise reasonable diligence to determine the correctness of a
return position that is contrary to the rule or regulation. See
sec. 1.6662-3(b)(2), Income Tax Regs.
Section 6662(a) and (b)(2) imposes a penalty equal to 20
percent of the portion of any underpayment of income tax
attributable to any substantial understatement of income tax. An
understatement is substantial if it exceeds the greater of (a) 10
percent of the tax required to be shown on the return or (b)
$5,000. See sec. 6662(d)(1)(A).
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