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IV. Section 6662 Accuracy-Related Penalty
Section 6662(a) and (b)(1) authorizes a 20-percent penalty
to be imposed on the portion of an underpayment of income tax
attributable to negligence or disregard of rules or regulations.
Respondent’s determination is presumed correct, and petitioners
have the burden of proving otherwise.13 See Rule 142(a); Hall v.
Commissioner, 729 F.2d 632, 635 (9th Cir. 1984), affg. T.C. Memo.
1982-337; Neely v. Commissioner, 85 T.C. 934, 947 (1985); Bixby
v. Commissioner, 58 T.C. 757, 791-792 (1972).
Negligence “includes 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,
supra at 947 (negligence is lack of due care or failure to do
what a reasonable and prudent person would do under the
circumstances).
We previously have held that a taxpayer’s adoption of a
“flagrant tax avoidance scheme” repeatedly rejected by the courts
is patently negligent. Wesenberg v. Commissioner, 69 T.C. 1005,
1015 (1978); see also Hanson v. Commissioner, supra. In 1994,
when the Castros established the two trusts, we already had
decided several abusive trust cases. In each case, we emphasized
that trusts, to be recognized for Federal income tax purposes,
must be infused with economic reality. See, e.g., Hanson v.
13Sec. 7491(c), which provides that the Secretary shall have
the burden of production in any court proceeding with respect to
an individual’s liability for a penalty, does not apply in this
case.
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