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understatement of income tax. Sec. 6662(b). 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).
Section 6662(c) and section 1.6662-3(b)(1), 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).
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
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