Gary W. McDonough - Page 17

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          care in the preparation of a tax return; disregard includes any             
          careless, reckless, or intentional disregard of rules or                    
          regulations.  Sec. 6662(c); see also Hansen v. Commissioner,                
          471 F.3d 1021, 1028 (9th Cir. 2006), affg. T.C. Memo. 2004-269.             
          Negligence has also been defined as the lack of due care or                 
          failure to do what a reasonable and ordinarily prudent person               
          would do under similar circumstances.  Allen v. Commissioner,               
          925 F.2d 348, 353 (9th Cir. 1991), affg. 92 T.C. 1 (1989).                  
          Negligence 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., and negligence is strongly                
          indicated where the 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, sec.                     
          1.6662-3(b)(1)(ii), Income Tax Regs.                                        
               Negligence is determined by testing a taxpayer’s conduct               
          against that of a reasonable, prudent person, Zmuda v.                      
          Commissioner, 731 F.2d 1417, 1422 (9th Cir. 1984), affg. 79 T.C.            
          714 (1982), and courts generally look both to the reasonableness            
          of the underlying investment and to the taxpayer’s position taken           
          on the return in evaluating whether the taxpayer was negligent,             
          Sacks v. Commissioner, 82 F.3d 918, 920 (9th Cir. 1996), affg.              
          T.C. Memo. 1994-217.  When an investment has such obviously                 

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