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includes any failure to exercise ordinary and reasonable care in
the preparation of a tax return, failure to keep books and
records, or failure to substantiate items properly. Sec. 1.6662-
3(b)(1), Income Tax Regs. A return position that has a
“reasonable basis” as defined in the regulation is not
attributable to negligence. Id.
An exception to the section 6662 penalty applies when the
taxpayer demonstrates that: (1) There was reasonable cause for
the underpayment, and (2) the taxpayer acted in good faith with
respect to the underpayment. Sec. 6664(c). Whether the taxpayer
acted with reasonable cause and in good faith is determined by
the relevant facts and circumstances on a case-by-case basis.
Stubblefield v. Commissioner, T.C. Memo. 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
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Last modified: May 25, 2011