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T.C. 934, 947 (1985). Negligence also includes any failure by
the taxpayer to keep adequate books and records or to
substantiate items properly. See sec. 1.6662-3(b)(1), Income Tax
Regs.
However, under section 6664(c), no penalty shall be imposed
under section 6662(a) with respect to any portion of an
underpayment if it is shown that there was a reasonable cause for
such portion and that the taxpayer acted in good faith with
respect to such portion. The determination of whether a taxpayer
acted with reasonable cause and in good faith depends upon the
facts and circumstances of each particular case. See sec.
1.6664-4(b)(1), Income Tax Regs. Relevant factors include the
taxpayer's efforts to assess his or her proper tax liability, the
knowledge and experience of the taxpayer, and reliance on the
advice of a professional, such as an accountant. See Drummond v.
Commissioner, T.C. Memo. 1997-71. However, the most important
factor is the extent of the taxpayer's effort to determine the
taxpayer's proper tax liability. See sec. 1.6664-4(b)(1), Income
Tax Regs. An honest misunderstanding of fact or law that is
reasonable in light of the experience, knowledge, and education
of the taxpayer may indicate reasonable cause and good faith.
See Remy v. Commissioner, T.C. Memo. 1997-72.
For all 3 years, the underpayments resulted from
respondent's disallowance of petitioners’ Schedule C deductions
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