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failure to do what a reasonable person with ordinary prudence
would do under the same or similar circumstances. Neely v.
Commissioner, 85 T.C. 934, 947 (1985). Disregard is defined to
include any careless, reckless, or intentional disregard. Sec.
6662(c). An accuracy-related penalty is not imposed with respect
to any portion of the understatement as to which the taxpayer
acted with reasonable cause and in good faith. Sec. 6664(c)(1).
Whether a taxpayer acts with reasonable cause and in good faith
depends on the relevant facts and circumstances, including the
extent of the taxpayer’s effort to properly assess the tax
liability. See sec. 1.6664-4(b)(1), Income Tax Regs.
As noted above, respondent bears the burden of production
with respect to the imposition of the section 6662(a) penalty.
Other than the disallowance of the deductions as discussed above,
nothing in the record suggests that the imposition of the penalty
is appropriate. As we view the matter, for purposes of the
imposition of the section 6662(a) penalty upon the ground of
negligence, the mere disallowance of a deduction, in and of
itself, is not sufficient to satisfy the burden of production
imposed upon respondent by section 7491(c). Petitioner is not
liable for the section 6662(a) penalty.
Reviewed and adopted as the report of the Small Tax
Division.
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Last modified: May 25, 2011