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3. Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty of 20
percent of the portion of the underpayment which is attributable
to negligence or disregard of rules or regulations. Sec.
6662(b)(1). Negligence is the lack of due care or failure to do
what a reasonable and ordinarily prudent person would do under
the circumstances. Neely v. Commissioner, 85 T.C. 934, 947
(1985). The term “disregard” includes any careless, reckless, or
intentional disregard. Sec. 6662(c). No penalty shall be
imposed if it is shown that there was reasonable cause for the
underpayment and the taxpayer acted in good faith with respect to
the underpayment. Sec. 6664(c).
As to the penalty under section 6662(a), under RRA 1998,
respondent has the burden of production, sec. 7491(c), but not
the burden of proof. The requirements of RRA 1998 as to penalty
provisions are discussed in detail in Higbee v. Commissioner, 116
T.C. (2001), and there is no reason to repeat that discussion
here.
Respondent has shown that petitioners have failed to keep
adequate books and records and that such records as they have
kept are inaccurate or exaggerated. Respondent also has
demonstrated that petitioners’ claim that they were engaged in
the Amway activity in 1996-1997 with a bona fide profit objective
is erroneous and inappropriate in view of petitioners’ long and
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