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Petitioners submitted insufficient documentation for a few
expenses, and had no documentation for the majority of the
expenses claimed. We have found that petitioners failed to
substantiate adequately any of the claimed business expense
deductions in dispute. Accordingly, we find that petitioners
were negligent in failing to substantiate any of their claimed
expenses.
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment, however, if there was
reasonable cause for the taxpayer’s position with respect to that
portion and the taxpayer acted in good faith with respect to that
portion. Sec. 6664(c)(1); sec. 1.6664-4(b), Income Tax Regs.
The determination of whether a taxpayer acted with reasonable
cause and in good faith is made on a case-by-case basis, taking
into account all pertinent facts and circumstances, including the
taxpayer’s efforts to assess his or her proper tax liability and
the knowledge and experience of the taxpayer. Sec. 1.6664-
4(b)(1), Income Tax Regs.
Petitioners argue that they acted with reasonable cause
regarding the disallowed deductions, citing respondent’s
concessions. We disagree. While petitioners correctly assert
that many of the expense adjustments respondent determined have
been reduced by agreement of the parties, petitioners failed to
substantiate any of the disputed expenses. Petitioner is a
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