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Petitioner also took a position at trial inconsistent with
the position he asserted with the IRS auditor. Petitioner
asserted to the Commissioner’s examining agent that he was
compensated for claims of defamation and loss of personal
reputation and IIED. Petitioner then abandoned the defamation
and loss of personal reputation claim at trial because he did not
have a valid argument supporting the claim. Petitioner is a
lawyer with experience in tax-advantaged financing. He
negotiated and structured the settlement agreement to secure tax
advantages that he knew were valid in form only and not in
substance.
Conversely, petitioner disclosed relevant facts and had a
reasonable basis to support his tax treatment of the $48,420 in
advances he received from Winston. Petitioner disclosed on his
1993 tax return the difference between the amount that appeared
on his Form K-1 and the amount that he reported. He also
provided a detailed explanation for this treatment. Further,
based on the acknowledgments he signed, petitioner could have
reasonably concluded that he would be obligated to repay the
advances if a settlement agreement had not been reached.
Accordingly, we hold that petitioner is subject to the accuracy-
related penalty under section 6662(a) for his treatment of the
$116,000 in lump-sum payments, but not subject to a penalty for
his treatment of the $48,420 in advance payments.
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