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after July 22, 1998. RRA 1998 sec. 3001(c)(1), 112 Stat. 727.
There is no dispute that the examination in the present case
commenced after July 22, 1998.
Section 6662(a) imposes a 20-percent penalty on the portion
of any underpayment attributable to any of various factors, one
of which is negligence or disregard of rules or regulations.
Sec. 6662(b)(1). “Negligence” includes any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code, including failure to keep adequate books and
records or to substantiate items properly. Sec. 6662(c); sec.
1.6662-4(b)(1), Income Tax Regs. Section 6664(c)(1) provides
that the penalty under section 6662(a) shall not apply to any
portion of an underpayment if it is shown that there was
reasonable cause for the taxpayer’s position and that the
taxpayer acted in good faith with respect to that portion. The
determination of whether a taxpayer acted with reasonable cause
and in good faith is made on a case-by-case basis, taking into
account all the pertinent facts and circumstances. Sec. 1.6664-
4(b)(1), Income Tax Regs. The most important factor is the
extent of the taxpayer’s effort to assess his or her proper tax
liability for the year. Id.
Upon the basis of the record in this case, petitioners have
not pleaded that the accuracy-related penalty, pursuant to
section 6662(a) with respect to the disallowed deductions and
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