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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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