-22-
Section 6662(a) and (b)(1) imposes a penalty equal to 20
percent of the portion of an underpayment of income tax
attributable to negligence. Negligence is defined as “any
failure to make a reasonable attempt to comply with the
provisions of * * * [the Code]”. Sec. 6662(c). Negligence is
the lack of due care or the failure to do what a reasonable and
prudent person would do under the circumstances. Neely v.
Commissioner, 85 T.C. 934, 947 (1985). Respondent has the burden
of production regarding penalties and must come forward with
sufficient evidence that it is appropriate to impose the penalty.
See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001).
Petitioners’ adjustments were due in part to their abusive
trusts. We have found taxpayers negligent who use trusts in
flagrant tax avoidance schemes. See, e.g., Wesenberg v.
Commissioner, 69 T.C. 1005, 1015 (1978); Castro v. Commissioner,
T.C. Memo. 2001-115; Hanson v. Commissioner, T.C. Memo. 1981-675,
affd. per curiam 696 F.2d 1232 (9th Cir. 1983). We conclude that
respondent has satisfied his burden of production and has shown
that petitioners’ underpayment of tax was due to negligence.
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment, however, if a taxpayer
shows that there was reasonable cause for, and that the taxpayer
acted in good faith with respect to, that portion. Sec.
7(...continued)
petitioners substantially understated their tax.
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