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the cost of commencing and engaging in the farming of jojoba by
claiming, inaccurately, that capital expenditures in jojoba
plantations might be treated as research or experimental
expenditures for purposes of claiming deductions under section
174." Id.
As a result of Blythe II's TEFRA proceeding, petitioners
were assessed tax deficiencies of $20,933 for 1982 and $1,006 for
1983, plus interest. Subsequently, respondent issued a notice of
deficiency to petitioners, for 1982 and 1983, for affected items,
determining that petitioners are liable for the additions to tax
for negligence under section 6653(a)(1) and (2) and a substantial
understatement of tax under section 6661 for 1982. These
additions to tax are the subject of the instant case.
The first issue is whether petitioners are liable for the
additions to tax for negligence under section 6653(a)(1) and (2)
for both years at issue. Section 6653(a)(1) imposes an addition
to tax in an amount equal to 5 percent of an underpayment of tax
if any part of the underpayment is due to negligence or
intentional disregard of rules or regulations. Section
6653(a)(2) imposes another addition to tax in an amount equal to
50 percent of the interest due on the portion of the underpayment
attributable to negligence or intentional disregard of rules or
regulations. Respondent’s determinations in a notice of
deficiency are presumed correct, and petitioners must establish
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