Kai-Chung C. and Meekhing T. Lam - Page 14

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          have conceded this issue by not pursuing it on brief.  See                  
          Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001); Rybak v.            
          Commissioner, 91 T.C. 524, 566 n.19 (1988).                                 
          IV. Accuracy-Related Penalty                                                
               We next consider whether petitioners are liable for the                
          accuracy-related penalty under section 6662(a) due to negligence            
          for each of the years at issue, as respondent determined.                   
          Petitioners bear the burden of production as well as the burden             
          of proof with respect to the accuracy-related penalty because the           
          examination commenced before section 7491(c) became effective.              
          Rule 142(a); Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972).            
               A taxpayer is liable for an accuracy-related penalty for any           
          part of an underpayment attributable to, among other things,                
          negligence or disregard of rules or regulations.5  Sec. 6662(a)             
          and (b)(1).  Negligence is the lack of due care or failure to do            
          what a reasonable and ordinarily prudent person would do under              
          the circumstances.  Neely v. Commissioner, 85 T.C. 934, 947                 
          (1985).  Negligence includes any failure by the taxpayer to keep            
          adequate books and records or to substantiate items properly.               
          Sec. 1.6662-3(b)(1), Income Tax Regs.                                       


               5Respondent determined in the alternative that petitioners             
          are liable for the accuracy-related penalty for substantial                 
          understatements of income tax under sec. 6662(b)(2) for the years           
          at issue.  Because of our holding on the negligence issue, we               
          need not consider whether the underpayments were also substantial           
          understatements.                                                            




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