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“Negligence” is defined in section 6662(c) as “any failure
to make a reasonable attempt to comply with the provisions of
this title,” and “disregard” as “any careless, reckless, or
intentional disregard.” Case law similarly states that
“‘Negligence is a lack of due care or the failure to do what a
reasonable and ordinarily prudent person would do under the
circumstances.’” Freytag v. Commissioner, 89 T.C. 849, 887
(1987) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th
Cir. 1967), affg. on this issue 43 T.C. 168 (1964) and T.C. Memo.
1964-299), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S.
868 (1991). Pursuant to regulations, “‘Negligence’ also includes
any failure by the taxpayer to keep adequate books and records or
to substantiate items properly.” Sec. 1.6662-3(b)(1), Income Tax
Regs.
A “substantial understatement” is declared by section
6662(d)(1) to exist where the amount of the understatement
exceeds the greater of 10 percent of the tax required to be shown
on the return for the taxable year or $5,000 ($10,000 in the case
of a corporation). For purposes of this computation, the amount
of the understatement is reduced to the extent attributable to an
item: (1) For which there existed substantial authority for the
taxpayer’s treatment thereof, or (2) with respect to which
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