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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), and citing Zmuda v. Commissioner, 731 F.2d 1417, 1422
(9th Cir. 1984), affg. 79 T.C. 714 (1982)). If a “taxpayer fails
to make a reasonable attempt to ascertain the correctness of a
deduction, credit or exclusion on a return which would seem to a
reasonable and prudent person to be ‘too good to be true’ under
the circumstances”, then there is a strong indication of
negligence. Sec. 1.6662-3(b)(1)(ii), Income Tax Regs.
Section 6664(c)(1) is an exception to the section 6662(a)
penalty: no penalty is imposed with respect to any portion of an
underpayment if it is shown that there was reasonable cause
therefor and the taxpayer acted in good faith. Section
1.6664-4(b)(1), Income Tax Regs., incorporates a facts and
circumstances test to determine whether the taxpayer acted with
reasonable cause and in good faith. The most important factor is
the extent of the taxpayer’s effort to assess his proper tax
liability. Id. “Circumstances that may indicate reasonable
cause and good faith include an honest misunderstanding of fact
or law that is reasonable in light of * * * the experience,
knowledge and education of the taxpayer.” Id.
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