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reckless, or intentional disregard.” Id. Under caselaw,
“‘Negligence is a lack of due care or the failure to do what a
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.
1964-2990), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S.
868 (1991).
There is a “substantial understatement” of income tax for
any taxable year where the amount of the understatement exceeds
the greater of (1) 10 percent of the tax required to be shown on
the return for the taxable year or (2) $5,000.
Sec. 6662(d)(1)(A)(i) and (ii). However, the amount of the
understatement is reduced to the extent attributable to an item
(1) for which there is or was substantial authority for the
taxpayer’s treatment thereof, or (2) with respect to which the
relevant facts were adequately disclosed on the taxpayer’s return
or an attached statement and there is a reasonable basis for the
taxpayer’s treatment of the item. See sec. 6662(d)(2)(B).
There is an exception to the section 6662(a) penalty when a
taxpayer can demonstrate (1) reasonable cause for the
underpayment and (2) that the taxpayer acted in good faith with
respect to the underpayment. Sec. 6664(c)(1). Regulations
promulgated under section 6664(c) further provide that the
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