John R. and Edith M. Garbini - Page 13

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          substantiate items properly.  Sec. 6662(c); sec. 1.6662-3(b)(1),            
          Income Tax Regs.  Moreover, negligence is the failure to exercise           
          due care or failure to do what a reasonable and prudent person              
          would do under the circumstances.  Neely v. Commissioner, 85 T.C.           
          934, 947 (1985).  Disregard includes any careless, reckless, or             
          intentional disregard of rules or regulations.  Sec. 6662(c);               
          sec. 1.6662-3(b)(2), Income Tax Regs.  No penalty will be imposed           
          with respect to any portion of any 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.            
               Under the facts of this case, section 6664(c) is not                   
          applicable.  Petitioner’s recordkeeping practice of creating                
          monthly lists from canceled checks simply is inadequate.  Such              
          actions are not those of a prudent and reasonable person in                 
          business.  On this record, we conclude that petitioners were                
          negligent and are liable for the accuracy-related penalties under           
          section 6662 as determined by respondent for the taxable years in           
          issue.  We need not address other grounds for respondent’s                  
          determinations as to section 6662.                                          
               Reviewed and adopted as the report of the Small Tax Case               
                                                  Decision will be entered            
                                             under Rule 155.                          

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