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tax for 2001 based on petitioners’ failure to report on their
return for that year wages received by Mr. McKee from Autocar in
the amount of $13,775. In a Stipulation of Settled Issues,
petitioners conceded that they are liable for the deficiency in
income tax as determined by respondent.
Respondent also determined an accuracy-related penalty under
section 6662(a) based on petitioners’ failure to report the
aforementioned wages. In this regard, respondent determined that
the underpayment is attributable to (1) negligence or disregard
of rules or regulations and/or (2) a substantial understatement
of tax.
Discussion
A. Substantive Law
Section 6662(a) imposes a penalty equal to 20 percent of any
underpayment of tax that is attributable to either (1) negligence
or disregard of rules or regulations or (2) a substantial
understatement of income tax. See sec. 6662(a), (b)(1) and (2).
The term “negligence” includes any failure to make a
reasonable attempt to comply with the Internal Revenue Code.
Sec. 6662(c). The term “disregard” includes any careless,
reckless, or intentional disregard. Id.; sec. 1.6662-3(b)(2),
Income Tax Regs.
An understatement of income tax is “substantial” if it
exceeds the greater of 10 percent of the tax required to be shown
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