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this issue. Respondent was unable to provide the Court with any
facts indicating that petitioners are not entitled to the claimed
deduction. Rather, respondent admitted that the examiner
initially allowed the claimed deduction in full for the 1995 year
on the basis of the application of a ratio of the same expense
for petitioners’ 1996 year.
Accordingly, petitioners are allowed the full amount of the
claimed advertising expense deduction for the 1995 year.
4. Section 6662(a) Accuracy-Related Penalty
Respondent determined that petitioners are liable for the
accuracy-related penalty for 1995 and 1996 under section 6662(a)
because of negligence or disregard of rules or regulations or
substantial understatement. The accuracy-related penalty is
equal to 20 percent of any portion of an underpayment of tax
required to be shown on the return that is attributable to, among
other choices, the taxpayer’s negligence or disregard of rules or
regulations or any substantial understatement of income tax.
Sec. 6662(a) and (b). “Negligence” includes any failure to make
a reasonable attempt to comply with the provisions of the Code
and any failure by the taxpayer to keep adequate books and
records or to substantiate items properly. Sec. 6662(c); sec.
1.6662-3(b)(1), Income Tax Regs. “Disregard” includes any
careless, reckless, or intentional disregard. Sec. 6662(c). A
taxpayer has a substantial understatement of income tax if the
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Last modified: May 25, 2011