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petitioner’s Schedule C; therefore, we sustain respondent’s
determination with respect to depreciation.3
E. Accuracy-Related Penalty
Respondent determined that petitioners are liable for an
accuracy-related penalty under section 6662(a). Section 6662(a)
imposes an accuracy-related penalty equal to 20 percent of the
portion of an underpayment that is attributable to, among other
things, negligence. Petitioners will avoid this penalty if the
record shows that they were not negligent; i.e., they made a
reasonable attempt to comply with the provisions of the Code and
they were not careless, reckless, or in intentional disregard of
rules or regulations. See sec. 6662(c); Keeler v. Commissioner,
243 F.3d 1212, 1221 (10th Cir. 2001), affg. Leema Enters., Inc.
v. Commissioner, T.C. Memo. 1999-18. Negligence connotes a lack
of due care or failure to do what a reasonable and prudent person
would do under the circumstances. See Allen v. Commissioner, 92
T.C. 1 (1989), affd. 925 F.2d 348 (9th Cir. 1991). An
3As noted above, on Nov. 30, 2005, CID agents executed
simultaneous search warrants at petitioner’s business and the
payroll company, and respondent has remained in possession of
those materials through the date of trial. The record does not
provide support that this circumstance impaired petitioners’
preparations for and offering of evidence at trial. In fact,
after this case was set for trial, respondent moved for
continuance, but petitioners opposed that motion; and the request
for continuance was denied. Further, Perez testified that the
information she had used to prepare petitioner’s Schedule C came
from the Quickbooks accounting system that she used and that she
had been able to restore that information from Quickbooks files
backups that had not been seized.
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