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With regard to respondent’s determination that petitioners
are liable for the accuracy-related penalty under section 6662(a)
due to negligence, petitioners argue that when they prepared
their 2004 return, they concluded that since their gambling
activity produced a net loss, they had no gambling income to
report. Petitioner Thomas Dawson testified that this was the way
petitioners had filed returns in prior years and that he was not
aware of the previously stated rules that precluded the netting
of gambling winnings and losses in determining adjusted gross
income. He explained that he used simple logic in determining
that petitioners’ gambling activity did not produce income.
Section 6662(c) defines negligence as “any failure to make a
reasonable attempt to comply with the provisions” of the Code.
After hearing the testimony presented, we conclude that
petitioners made an honest attempt to comply with their reporting
requirements. Petitioners do not purport to be tax experts and
when preparing their returns concluded that they did not have to
report gambling income because their nonbusiness gambling
activity resulted in a net loss. While their conclusion was
incorrect, we do not think that their error negates the
reasonableness of their attempt to comply with their reporting
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Last modified: March 27, 2008