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Overall, we hold that Zane has established that he entered
into the cow and dairy farm activity in 2001 with the requisite
profit motive within the meaning of section 183.
Whether Petitioners Are Liable for Penalties Under Section 6662
for Each Adjustment Considered by the Court for the Taxable Years
1998, 1999, 2000, and 2001
Section 6662(a) imposes a 20-percent penalty on any portion
of an underpayment of tax required to be shown on a return. The
penalty is applicable to the portion of any underpayment
attributable to one or more of the following: (1) Negligence or
disregard of rules or regulations; (2) any substantial
understatement of income tax, and (3) any substantial valuation
misstatement. Sec. 6662(b).
The term “negligence” includes any failure to make a
reasonable attempt to comply with the provisions of title 26, and
“disregard” includes any careless, reckless, or intentional
disregard. Sec. 6662(c). Negligence is the lack of due care or
failure to do what a reasonable and ordinarily prudent person
would do in a similar situation. Neely v. Commissioner, 85 T.C.
934, 947 (1985).
Negligence includes any failure to exercise ordinary and
reasonable care in the preparation of a tax return, but it does
not include a return position that has a reasonable basis. Sec.
1.6662-3(b)(1), Income Tax Regs. Reasonable basis is a
relatively high standard of tax reporting, significantly higher
than not frivolous or not patently improper. It is not satisfied
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