-35-
related penalty is attributable to negligence or disregard of
rules or regulations. Furthermore, we find that respondent has
carried his burden of production with respect to the addition to
tax under section 6662(a). See Higbee v. Commissioner, supra at
448-449.
Petitioners’ return for 1998 reported the ESOP distribution
of $467,817 and further reported the taxable amount of that
distribution as “NONE”. That return is consistent with the Form
5498 issued by Norwest for the year 1998 which shows rollover
contributions of $411,629.63, and it is consistent with the
Norwest statement for petitioner’s IRA for the period ending
August 31, 1998, showing a stock rollover into the account on
August 24, 1998, consisting of 10,323 shares of J.D. Edwards &
Co. stock. Petitioners’ 1998 return was not filed until October
4, 2000, by which time almost all of the money in Mr. Kopty’s IRA
had been withdrawn. In filing their 1998 return claiming that
the ESOP distribution was not taxable, petitioners knew, or
should have known, that the distributions from Mr. Kopty’s IRA
during 1999 and 2000 were subject to tax under section 408(d).
Accordingly, when they filed their return for 1999 on November
21, 2001, and reported none of the distributions as income, we
agree with respondent that the portion of the underpayment of tax
resulting therefrom is attributable to negligence or disregard of
rules or regulations. Furthermore, petitioners not only failed
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