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from the deduction of the State income taxes in 1996.3 However,
the amount included in gross income is limited to the $1,116
deduction; the remainder of the $2,073 refund reflected in the
notice of deficiency is not includable, contrary to respondent’s
determination. See sec. 111(a).
The final issue for decision is whether petitioner is liable
for accuracy-related penalties for negligence or disregard of
rules or regulations. Respondent determined that petitioner was
liable for the penalty for an underpayment equal to the total
amount of the deficiency in each year in issue.
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment attributable to any one of various factors,
one of which is negligence or disregard of rules or regulations.
See sec. 6662(b)(1). “Negligence” includes any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code, including any failure to keep adequate books and
records or to substantiate items properly. See sec. 6662(c);
sec. 1.6662-3(b)(1), Income Tax Regs. Section 6664(c)(1)
provides that the penalty under section 6662(a) shall not apply
to any portion of an underpayment if it is shown that there was
reasonable cause for the taxpayer’s position and that the
taxpayer acted in good faith with respect to that portion. The
3The final amount of the inclusion will be calculated in the
Rule 155 computation required in this case.
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Last modified: May 25, 2011