Manuel and Luella J. Delara - Page 6




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          the Code definition of negligence as a lack of due care or                  
          failure to do what a reasonable and prudent person would do under           
          similar circumstances.  Allen v. Commissioner, 925 F.2d 348, 353            
          (9th Cir. 1991), affg. 92 T.C. 1 (1989).  Section 1.6662-3(b)(1),           
          Income Tax Regs., provides that "Negligence is strongly indicated           
          where * * * a taxpayer fails to make a reasonable attempt to                
          ascertain the correctness of a deduction * * * on a return which            
          would seem to a reasonable and prudent person to be 'too good to            
          be true' under the circumstances".                                          
               An exception applies when the taxpayer demonstrates (1)                
          there was reasonable cause for the underpayment, and (2) the                
          taxpayer acted in good faith with respect to the underpayment.              
          Sec. 6664(c).  Whether the taxpayer acted with reasonable cause             
          and in good faith is determined by the relevant facts and                   
          circumstances.  The most important factor is the extent of the              
          taxpayer's effort to assess the proper tax liability.                       
          Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec. 1.6664-             
          4(b)(1), Income Tax Regs.  Under section 1.6664-4(b)(1), Income             
          Tax Regs., "Circumstances that may indicate reasonable cause and            
          good faith include an honest misunderstanding of fact or law that           
          is reasonable in light of all of the facts and circumstances,               
          including the experience, knowledge and education of the                    
          taxpayer."  Moreover, a taxpayer is generally charged with                  
          knowledge of the law.  Niedringhaus v. Commissioner, 99 T.C. 202,           





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