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Lenzens are liable for income tax on additional gambling income
of $13,619 for 1999.
IV. Penalties
Section 6662 imposes an accuracy-related penalty on the
portion of an underpayment attributable to negligence or
disregard of the rules or regulations. Sec. 6662(b)(1). The
term “negligence” includes any failure to make a reasonable
attempt to comply with the provisions of the internal revenue
laws or to exercise ordinary and reasonable care in the
preparation of a tax return. Sec. 6662(c); Gowni v.
Commissioner, T.C. Memo. 2004-154. Failure to maintain adequate
books and records or to substantiate items properly also
constitutes negligence. Sec. 1.6662-3(b), Income Tax Regs. The
term “disregard” includes any careless, reckless, or intentional
disregard. Id. An accuracy-related penalty will not be imposed
with respect to any portion of an underpayment as to which the
taxpayer acted with reasonable cause and in good faith. Sec.
6664(c).
We determined above that petitioners did not maintain the
substantiation required by sections 162, 274, and 6001 for the
sales expense deduction. In addition, Mr. Lenzen admitted that
he did not retain adequate records of his gambling winnings and
losses. Petitioners have not shown that they had reasonable
cause or acted in good faith in deducting the Lenzens’ personal
expenses as business expenses of RAF and in underreporting the
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