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disregard of the rules or regulations or (2) any substantial
understatement of income tax. Sec. 6662(b).
Section 6662(c) and section 1.6662-3(b)(1) and (2), Income
Tax Regs., define “negligence” as including any failure to make a
reasonable attempt to comply with the Code and define the term
“disregard” as including any “careless, reckless, or intentional
disregard”. Negligence is a “lack of due care or failure to do
what a reasonable and ordinarily prudent person would do under
the circumstances.” Marcello v. Commissioner, 380 F.2d 499, 506
(5th Cir. 1967), affg. on this issue 43 T.C. 168 (1964) and T.C.
Memo. 1964-299; ASAT, Inc. v. Commissioner, 108 T.C. 147, 175
(1997); Neely v. Commissioner, 85 T.C. 934, 947 (1985).
A substantial understatement of income tax exists for an
individual where the amount of the understatement exceeds the
greater of (1) 10 percent of the tax required to be shown on the
return or (2) $5,000. Sec. 6662(d)(1)(A).
An “understatement” is defined as the excess of the amount
of tax required to be shown on the return for the taxable year
over the amount of tax imposed which is shown on the return,
reduced by any rebate. Sec. 6662(d)(2)(A). The amount of the
understatement shall be reduced by that portion of the
understatement attributable to the tax treatment of any item by
the taxpayer if there is or was substantial authority for such
treatment or as to any item if (1) “the relevant facts affecting
the item’s tax treatment are adequately disclosed in the return
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