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determined by the relevant facts and circumstances on a
case-by-case basis. See Stubblefield v. Commissioner, T.C.
Memo. 1996-537; sec. 1.6664-4(b)(1), Income Tax Regs.
“Circumstances that may indicate reasonable cause and good faith
include an honest misunderstanding of fact or law that is
reasonable in light of all the facts and circumstances,
including the experience, knowledge and education of the
taxpayer.” Sec. 1.6664-4(b)(1), Income Tax Regs. A taxpayer is
not subject to the addition to tax for negligence where the
taxpayer makes honest mistakes in complex matters, but the
taxpayer must take reasonable steps to determine the law and to
comply with it. Niedringhaus v. Commissioner, 99 T.C. 202, 222
(1992). The most important factor is the extent of the
taxpayer’s effort to assess the proper tax liability.
Stubblefield v. Commissioner, supra; sec. 1.6664-4(b)(1), Income
Tax Regs.
At trial, respondent’s counsel acknowledged that the
provisions under section 469 are complicated. Petitioners had
limited experience with these provisions in 2000 because they
had begun their rental activities only a year earlier.
Furthermore, despite working full-time jobs in addition to the
rental activities, petitioners created and/or maintained a
number of records relating to the rental activities, such as
e-mails, receipts, and correspondence. Although these records
fail to establish that Mrs. Hanna was a real estate
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