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rules or regulations. Negligence is the lack of due care or
failure to do what a reasonable and ordinarily prudent person
would do under the circumstances. See Neely v. Commissioner, 85
T.C. 934, 947 (1985). Under section 6664(c), no penalty shall be
imposed under section 6662(a) with respect to any portion of an
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. The determination of whether a taxpayer
acted with reasonable cause and in good faith depends upon the
facts and circumstances of each particular case. See sec.
1.6664-4(b)(1), Income Tax Regs. Relevant factors include the
taxpayer’s efforts to assess his or her proper tax liability, the
knowledge and experience of the taxpayer, and reliance on the
advice of a professional, such as an accountant. See Drummond v.
Commissioner, T.C. Memo. 1997-71, affd. in part and revd. in part
without published opinion 155 F.3d 558 (4th Cir. 1998). However,
the most important factor is the extent of the taxpayer’s effort
to determine the taxpayer’s proper tax liability. See sec.
1.6664-4(b)(1), Income Tax Regs. An honest misunderstanding of
fact or law that is reasonable in light of the experience,
knowledge, and education of the taxpayer may indicate reasonable
cause and good faith. See Remy v. Commissioner, T.C. Memo. 1997-
72.
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Last modified: May 25, 2011