Lee B. Arberg and Melissa A. Quinn - Page 43




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          IV.  Accuracy-Related Penalty                                               
               Subsection (a) of section 6662 imposes an accuracy-related             
          penalty in the amount of 20 percent of any underpayment that is             
          attributable to causes specified in subsection (b).  Subsection             
          (b) of section 6662 then provides that among the causes                     
          justifying imposition of the penalty are:  (1) Negligence or                
          disregard of rules or regulations and (2) any substantial                   
          understatement of income tax.                                               
               “Negligence” is defined in section 6662(c) as “any failure             
          to make a reasonable attempt to comply with the provisions of               
          this title”, and “disregard” as “any careless, reckless, or                 
          intentional disregard.”  Caselaw similarly states that                      
          “‘Negligence is a lack of due care or the failure to do what a              
          reasonable and ordinarily prudent person would do under the                 
          circumstances.’”  Freytag v. Commissioner, 89 T.C. 849, 887                 
          (1987) (quoting 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), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S.              
          868 (1991).  Pursuant to regulations, “‘Negligence’ also includes           
          any failure by the taxpayer to keep adequate books and records or           
          to substantiate items properly.”  Sec. 1.6662-3(b)(1), Income Tax           
          Regs.                                                                       
               A “substantial understatement” is declared by section                  
          6662(d)(1) to exist where the amount of the understatement                  







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