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1996-537; sec. 1.6664-4(b)(1), Income Tax Regs. “Circumstances
that may indicate reasonable cause and good faith include an
honest misunderstanding of fact or law that is reasonable in
light of all the facts and circumstances, including the
experience, knowledge, and education of the taxpayer.” Sec.
1.6664-4(b)(1), Income Tax Regs. A taxpayer is not subject to
the addition to tax for negligence where the taxpayer makes
honest mistakes in complex matters, but the taxpayer must take
reasonable steps to determine the law and to comply with it.
Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992). The most
important factor is the extent of the taxpayer’s effort to assess
the proper tax liability. Stubblefield v. Commissioner, T.C.
Memo. 1996-537; sec. 1.6664-4(b)(1), Income Tax Regs.
Respondent has met his burden of production with respect to
the accuracy-related penalties under section 6662(a). The
returns filed by petitioners contained cautionary language that
they failed to heed. Petitioners did not maintain records for
their rental real estate activity, but produced the spreadsheet
and daily work log only in response to an examination of their
returns by respondent. Based upon these facts and circumstances,
we find that petitioners did not take reasonable steps to
determine the law and to comply with it. Moreover, petitioners
have failed to demonstrate that there was reasonable cause and
that they acted in good faith. Accordingly, we sustain
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