Sarah A. Bland-Barclay and Francis Barclay - Page 8

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          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) (quoting Marcello v. Commissioner, 380 F.2d 499, 506             
          (5th Cir. 1967), affg. in part and remanding in part 43 T.C. 168            
          (1964) and T.C. Memo. 1964-299).  It 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.  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 noted above, we found that petitioners did not                      
          substantiate, during the examination or at trial, any of the                
          amounts of disallowed Schedule A itemized deductions and Schedule           
          C business expense deductions.  Petitioner was an income tax                
          return preparer during the year in issue.  As an income tax                 
          return preparer, petitioner should have been aware of and                   
          understood the substantiation requirements for deductions claimed           
          on the Schedules A and C.                                                   
               Because petitioners failed to offer any credible explanation           
          for their lack of due care in preparing and filing their 1996               

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