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“negligence” includes any failure to make a reasonable attempt to
comply with the provisions of the Internal Revenue Code, and any
failure to keep adequate books and records or to substantiate
items properly, and the term “disregard” includes any careless,
reckless, or intentional disregard. Sec. 6662(c); sec.
1.6662-3(b)(1) and (2), Income Tax Regs. No penalty shall be
imposed if it is shown that there was reasonable cause for the
underpayment and the taxpayer acted in good faith with respect to
the underpayment. Sec. 6664(c).
While petitioners are by no means sophisticated in matters
related to tax, the manner in which petitioners operated their
purported business and the character of the deductions claimed as
part of that purported business, convince us that the
underpayment of tax for each year was attributable to a disregard
of the rules and regulations. For instance, petitioners claimed
deductions for the cost of cat litter, a Dish Network
subscription, and a life insurance policy.
Petitioners rely on Nitschke v. Commissioner, T.C. Memo.
2000-230, for support that Melaleuca is a business. In Nitschke,
the Commissioner challenged whether certain claimed expenses of
the taxpayer, related to Melaleuca activities, were ordinary and
necessary under section 162(a) and did not challenge whether the
taxpayer was operating their Melaleuca activities for profit.
Thus, our decision in Nitschke is of no relevance to whether
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Last modified: November 10, 2007