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Regs. Section 1.6662-3(b)(1), Income Tax Regs., provides that
negligence is strongly indicated where “A taxpayer fails to make
a reasonable attempt to ascertain the correctness of a deduction,
credit or exclusion on a return which would seem to a reasonable
and prudent person to be ‘too good to be true’ under the
circumstances”. “Disregard” has been described as any careless,
reckless, or intentional disregard. Sec. 6662(c).
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 with respect to that portion 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
within the meaning of section 6664(c)(1) 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 proper tax liability for the year. Id. Section 1.6664-
4(b)(1), Income Tax Regs, specifically provides: “Circumstances
that may indicate reasonable cause and good faith include an
honest misunderstanding of fact or law that is reasonable in
light of * * * the experience, knowledge, and education of the
taxpayer.” See Neely v. Commissioner, 85 T.C. 934 (1985).
Petitioners’ backgrounds have not been made part of the
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Last modified: May 25, 2011