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establish that the taxpayer was not negligent and may satisfy the
reasonable cause exception of section 6664(c). Section 1.6662-
3(a), Income Tax Regs.
Petitioners contend that the section 6662(a) penalty should
not be imposed: (1) Because they relied on professional advisers
for the preparation of their 1994 and 1995 returns; and (2)
because the test for adequate disclosure should properly be
applied to the Partnership’s return, and not to petitioners’
returns. The latter argument was raised for the first time in
petitioners’ reply brief.
Petitioners argue that they relied upon a C.P.A. for advice
as to how the Fitch Property transaction should be reported, and
that he was unaware of the existence of the Covenant Not to Sue
Agreement when he filed the partnership return for 1994. All the
facts in the record lead to the conclusion that petitioners did
not report the transaction on their 1993 return, which is not in
the record. Neither was the transaction reported on petitioners’
1994 return.
Petitioners contend that the reporting requirement was
satisfied by the fact that the “reconveyance” was reported by the
LLC, “a related partnership”, as a sale or exchange of property
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