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circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
The term “disregard” includes “any careless, reckless, or
intentional disregard.” Sec. 6662(c). Disregard of rules or
regulations is careless if the taxpayer does not exercise
reasonable diligence to determine the correctness of a return
position that is contrary to the rule or regulation.
Respondent has the burden of production under section
7491(c), but petitioners have the burden of proof. See Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001). Respondent must come
forward with sufficient evidence that it is appropriate to impose
the penalty. See id.
After attending the NTS seminars on investments and the use
of “complex” trusts, petitioners believed NTS’s representations
that once they had conveyed their personal assets, including
lifetime services, to the OMK trusts, they could assign their
income from P.I. Ministries to the OMK trusts and deduct personal
expenses. They also believed Little’s promises of extraordinary
returns on their investments. Unfortunately, petitioners never
sought independent legal or tax advice before or after creating
the OMK trusts pursuant to the trust scheme NTS promoted. A
competent independent tax adviser would have warned petitioners
that the scheme would not survive scrutiny by the Internal
Revenue Service or the courts. This trust scheme was without
economic substance, was an anticipatory assignment of income, and
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