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reasonable attempt to comply with the provisions of the Internal
Revenue Code, including any failure to keep adequate books and
records or to substantiate items properly. Sec. 6662(c); sec.
1.6662-3(b)(1), Income Tax Regs. Section 6664(c)(1) provides
that the penalty under section 6662(a) shall not apply to any
portion of an underpayment if it is shown that there was
reasonable cause for the taxpayer’s position and that the
taxpayer acted in good faith with respect to that portion. The
determination of whether a taxpayer acted with reasonable cause
and in good faith is made on a case by case basis, taking into
account all the pertinent facts and circumstances. Sec. 1.6664-
4(b)(1), Income Tax Regs. The most important factor is the
extent of the taxpayer’s effort to assess his proper tax
liability for the year. Id.; Neely v. Commissioner, 85 T.C. 934,
947 (1985). We find that petitioner was negligent and lacked due
care in preparing its Federal income tax return for the year
ended May 31, 1995. We are confident that petitioner was aware
that its accountant and bookkeeper, Mr. Kelson, on a daily basis,
reconciled cash register tapes 1 and 2 to eliminate any “double-
ups”. Respondent is sustained on this issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
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