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knowledge and education of the taxpayer.” Sec. 1.6664-4(b)(1),
Income Tax Regs. A taxpayer is not subject to the addition to
tax for negligence where the taxpayer makes honest mistakes in
complex matters, but the taxpayer must take reasonable steps to
determine the law and to comply with it. Niedringhaus v.
Commissioner, 99 T.C. 202, 222 (1992). The most important factor
is the extent of the taxpayer’s effort to assess the proper tax
liability. Stubblefield v. Commissioner, supra; sec. 1.6664-
4(b)(1), Income Tax Regs.
Petitioners demonstrated facts and circumstances that
establish their reasonable cause and good faith in this case.
Even before being audited, Mrs. Jahina took reasonable measures
to determine and comply with the law regarding passive activities
and real estate professionals. She was aware of the passive loss
provisions and attempted to comply with them. She kept
contemporaneous calendars and other business records to establish
her time and material participation. See sec. 1.469-5T(f)(4),
Temporary Income Tax Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988).
She testified, with detail, on the extent of her involvement with
the rental activities and her consistent treatment of them as a
going concern. Her recordkeeping efforts and testimony were
credible, particularly given the complexity of the passive loss
provisions. Cf. sec. 1.6662-3(b), Income Tax Regs.
(“‘Negligence’ includes any failure by the taxpayer to keep
adequate books and records or to substantiate items properly”).
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