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E. Negligence Penalties
In the notices of deficiency, respondent determined
accuracy-related penalties pursuant to section 6662 in the
amounts of $19,738.00,35 $1,150.80, and $774.60 for the taxable
years 1995, 1996, and 1997, respectively. The 1995 penalty is
based upon petitioners’ failure to report WPA income. The 1996
and 1997 penalties are premised upon respondent’s disallowance of
expense deductions for Mr. Sowards’s law practice and for the
fabricated organizational consulting business.
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment of tax attributable to, inter alia, negligence
and/or a substantial understatement of income tax. “Negligence”
is defined as “any failure to make a reasonable attempt to comply
with the provisions of this title” and “disregard” means “any
careless, reckless, or intentional disregard.” Sec. 6662(c).
Similarly, case law defines negligence as a lack of due care or
“the failure to do what a reasonable and ordinarily prudent
person would do under the circumstances.” Freytag v.
Commissioner, 89 T.C. 849, 887 (1987) (quoting Marcello v.
35It appears from the notice of deficiency that the amount
of the negligence penalty that respondent calculated for 1995 is
premised upon, inter alia, the inclusion of $209,141 of
additional, unreported income. As indicated previously,
respondent conceded this issue. See supra note 2. Thus, in
accordance with this opinion and the concession of the parties,
the amount of the negligence penalty must necessarily be
recalculated.
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