- 40 -
to negligence, but rather a factor to be considered. First it
must be established that the reliance was reasonable." Freytag
v. Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011
(5th Cir. 1990), affd. 501 U.S. 868 (1991).
Respondent maintains that petitioners may not rely on the
advice of Bernard and Pryor for protection from the penalty.
Respondent argues that petitioners, Bernard, and Pryor conspired
to prepare and present to the IRS backdated documents and
accounting entries. We agree with respondent.
Petitioners "instructed" Pryor and Bernard rather than
relied on them. Bernard testified:
If I had to describe myself in connection with all
of my activities for Mr. Georgiou, if I had to draw the
distinction between scrivener and business adviser, I
would describe myself as a scrivener. I would produce
documents to reflect agreements that had been reached
by the client.
Bernard stated that he had not seen the financial records or tax
returns of petitioners' corporations and that he would
"absolutely not" describe himself as Georgiou's or Kolonaki's tax
adviser. Regarding Kolonaki, Bernard testified as follows:
Q Did you feel it was necessary in your role as
counsel, business counsel, to know something about the
finances of the corporate client?
A Not only didn't I, because I wasn't giving
Mr. Georgiou financial advice, but I felt that if I had
inquired about financial information about Kolonaki I
would have been rebuffed and it would have damaged my
relationship with the client.
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