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did not conduct the farming activity with an actual and honest
objective of making a profit in 1998 or 2000. The net losses
petitioner sustained conducting the farming activity are
therefore not deductible from gross income. Accordingly, we
sustain respondent’s determinations in the deficiency notice for
1998 and 2000.
D. Whether Petitioners Are Liable for the Accuracy-Related
Penalty
We next consider whether petitioners are liable for the
accuracy-related penalty under section 6662(a). Respondent
asserts that all or part of the underpayment of tax for the years
at issue is due to negligence or disregard of rules or
regulations. We have found that there is no underpayment of tax
for 1999. Accordingly, petitioners are not liable for the
accuracy-related penalty for 1999.
A penalty applies to the portion of an underpayment of
income tax attributable to negligence or disregard of rules or
regulations. Sec. 6662(a) and (b)(1). 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, 937 (1985). Disregard encompasses any
“careless, reckless or intentional disregard.” Sec. 6662(c).
Respondent has the burden of production regarding penalties
and must come forward with sufficient evidence that it is
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