- 34 -
Commissioner, 86 T.C. 492, 539-540 (1986), affd. 864 F.2d 1521
(10th Cir. 1989).
Petitioner has shown that Lakeview acted with reasonable
cause in claiming the $134,116 “forgiveness of debt” deduction.
There is ample evidence in the record that Lakeview's C.P.A. was
provided with information concerning petitioner’s position that
William had diverted assets from Lakeview. Furthermore, Lakeview
and its C.P.A. consulted legal counsel concerning whether
recovery from William was feasible. Although Lakeview received
incorrect advice regarding its “forgiveness of debt” deduction,
we are satisfied that it took the deduction in good faith based
on professional advice, after adequate disclosure to advisers.
Therefore, there was reasonable cause and good faith with respect
to the portion of the underpayment attributable to the
“forgiveness of debt” deduction.
We do not believe that petitioner has shown that he relied
in good faith on qualified advice, or otherwise had reasonable
cause, with respect to the remaining deductions disallowed by
respondent.13 With respect to Lakeview's $75,000 deduction for
“rent”, petitioner has failed to establish that full disclosure
was made to Lakeview's C.P.A. The C.P.A. testified that it was
his understanding that this payment was intended as consideration
for William’s execution of the Release Agreement, although the
13 Petitioner has not argued that any portion of the
understatement should be reduced pursuant to sec. 6662(d)(2)(B)
because there was substantial authority for, or adequate
disclosure of, the tax treatment of any item.
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