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the accrued interest, Mr. Menard could have demanded payment of
the interest at any time, and Menards placed no substantial
restrictions or limitations on Mr. Menard’s receipt of the
interest. Mr. Menard constructively received interest income in
1998 and is liable for tax on the full amount of $639,302.
VI. Section 6662(a) Accuracy-Related Penalties for Negligence or
Disregard of Rules or Regulations
If any portion of an underpayment of tax required to be
shown on a taxpayer’s return is attributable to “negligence or
disregard of rules or regulations”, the taxpayer is liable for a
penalty equal to 20 percent of that portion of the underpayment.
See sec. 6662(a) and (b)(1). “Negligence” includes a taxpayer’s
failure to “make a reasonable attempt to comply with the
provisions of * * * [the Internal Revenue Code]” and maintain
adequate books and records or properly substantiate items.
“Disregard” comprises “any careless, reckless, or intentional
disregard”. Sec. 6662(c); sec. 1.6662-3(b)(1) and (2), Income
Tax Regs.
Respondent determined that Menards is liable for a section
6662(a) accuracy-related penalty for the TMI expenses deduction,
and Mr. Menard is liable for a section 6662(a) accuracy-related
penalty for the constructive dividend attributable to Menards’s
payment of the excess TMI expenses and the constructive receipt
of interest income. Pursuant to section 7491(c), respondent must
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