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Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. on this
issue 43 T.C. 168 (1964) and T.C. Memo. 1964-299), affd. 904 F.2d
1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991). Pursuant to the
regulations, “‘Neglience’ also includes any failure by the
taxpayer to keep adequate books and records or to substantiate
items properly.” Sec. 1.6662-3(b)(1), Income Tax Regs.
Section 6664(c) provides an exception to the penalty imposed
under section 6662(a). “No penalty shall be imposed under this
part with respect to any portion of an underpayment if it is
shown that there was a reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.”
Sec. 6664(c)(1). The determination of whether the taxpayer acted
with reasonable cause and in good faith is made on a case-by-case
basis, contemplating all of the relevant facts and circumstances.
Sec. 1.6664-4(b)(1), Income Tax Regs.
Given the record before us, we sustain the negligence
penalties. Mr. Sowards was not a credible witness; he offered
inconsistent and implausible explanations to respondent’s
employees and this Court. He intentionally disregarded the tax
laws by attempting to surreptitiously characterize payments by
STL to WPA as nontaxable loans. The failure to keep books and
substantiate claimed deductions justifies the imposition of the
penalties. See sec. 1.6662-3(b)(1), Income Tax Regs.
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