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As to Richard and his wife, we are satisfied that they
reasonably relied upon the advice of Mr. White in claiming the
business losses on their individual tax returns for the years at
issue. After Richard learned that Raul would be financially unable
to contribute to the business, he met with Mr. White and Ms.
Hemphill. Ms. Hemphill corroborated that such a meeting occurred.
She testified that, at this meeting, it was decided that "Cola
Performance would operate as a sole proprietorship and was not
going to operate as a corporation." We found Ms. Hemphill to be a
credible witness. Accordingly, we do not sustain respondent's
accuracy-related penalties determination as to Richard C. and
Hattie M. Martin for any of the years in issue.
However, as to William and his wife, we are not satisfied that
they reasonably relied upon the advice of Mr. White in claiming the
business losses on their individual tax returns for the years at
issue. William testified that "Sam White came to me and said that
he * * * [believed] * * * that [I could] participate in some
losses. And I said, if that's what you think I can do, be my
guest." William and his wife, Sylvia, claimed Cola, Inc.'s losses
even though they were aware that they had neither an ownership
interest in, nor an involvement with, the business. By doing so,
they did not act in good faith; we believe a reasonably prudent
person under the same circumstances would not have claimed the
losses. Accordingly, we sustain respondent's accuracy-related
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