Gary W. McDonough - Page 17
- 17 -
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
Page: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Last modified: November 10, 2007