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6662(a) and (b)(1). Negligence consists of any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code, and disregard consists of any careless, reckless,
or intentional disregard. Sec. 6662(c). The courts have refined
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).
An exception to the section 6662 penalty 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. See Stubblefield v.
Commissioner, T.C. Memo. 1996-537 (citing Estate of Monroe v.
Commissioner, 104 T.C. 352, 366 (1995)); sec. 1.6664-4(b)(1),
Income Tax Regs. The most important factor is the extent of the
taxpayer’s effort to assess the proper tax liability.
Stubblefield v. Commissioner, supra (citing Beard v.
Commissioner, T.C. Memo. 1995-41); 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 the facts and circumstances, including
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