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taxpayer's treatment of the item was based on substantial
authority or was adequately disclosed in the return or in a
statement attached to the return. Secs. 6661(b)(2)(B)(i) and
(ii), 6662(d)(2)(B)(i) and (ii). The term "understatement" is
defined as the excess of the amount of tax required to be shown
on the return for the taxable year over the amount of tax shown
on the return for the taxable year, reduced by any rebate. Secs.
6661(b)(2), 6662(d)(2)(A).
A. Section 6662 Penalty
Respondent determined that the section 6662 accuracy-related
penalty for Georgiou and Kolonaki was based on a substantial
understatement or, in the alternative, negligence. Both carry
the same penalty. Kolonaki and Georgiou (petitioners) argue that
an accuracy-related penalty should not be imposed.
Petitioners rely on section 6664(c), which states that the
accuracy-related penalty does not apply with respect to any
portion of an underpayment if it is shown that there was
reasonable cause for such portion and that the taxpayer acted in
good faith with respect to that portion. Petitioners contend
that they are not liable for the penalty because they reasonably
and in good faith relied upon the advice of professionals,
specifically, Pryor and Bernard. But reliance on the advice of a
professional does not necessarily demonstrate reasonable cause
and good faith. Sec. 1.6664-4(b), Income Tax Regs. "Reliance on
professional advice, standing alone, is not an absolute defense
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