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produce any evidence to substantiate the advertising and office
expenses claimed by them. Therefore, respondent properly
disallowed the advertising and office expense deductions in 2001.
Section 6662(a) Accuracy-Related Penalty
Section 6662(a) imposes a penalty in an amount equal to
20 percent of the underpayment of tax attributable to one or more
of the items set forth in section 6662(b). Respondent asserts
that the underpayment attributable to the disallowed deductions
was due to negligence or disregard of rules or regulations. See
sec. 6662(b)(1). Section 6662(c) defines “negligence” as
including any failure to make a reasonable attempt to comply with
the provisions of the Internal Revenue Code and defines
“disregard” as including any careless, reckless, or intentional
disregard. Negligence also includes a failure to keep adequate
books and records or to substantiate items properly. Sec.
1.6662-3(b)(1), Income Tax Regs. Negligence is strongly
indicated where “a taxpayer fails to make a reasonable attempt to
ascertain the correctness of a deduction * * * on a return which
would seem to a reasonable and prudent person to be ‘too good to
be true’ under the circumstances”. Sec 1.6662-3(b)(1)(ii),
Income Tax Regs. Disregard of the rules and regulations is
“careless” if the taxpayer does not exercise reasonable diligence
to determine the correctness of a return position and is
“reckless” if “the taxpayer makes little or no effort to
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Last modified: May 25, 2011