- 13 -
A I guess we were looking at it more as
accounting advice than strictly tax advice.
Q So your reliance on Ms. Northcutt for these
lease expenses goes to the question of accounting as
opposed to tax return preparation?
A Having never been involved in an audit or
anything, we're more aware of it now but at the time,
no, we were concerned with accounting and the company.
We really didn't give much thought to being audited or
the IRS. We do now.
Northcutt’s return preparation consisted of transferring the
information in petitioner's ledgers to an income tax form without
verifying the validity of the entries in the ledger. Jump did
not inquire about the tax consequences of the transactions
entered into by petitioners and did not receive advice on the tax
consequences. Jump, by his own admission, did not rely on
Northcutt to render tax advice. Moreover, Jump did not follow
her advice as to the characteristics of a “legitimate” lease,
because two of the five purported leases’ payment terms were for
a duration of less than 1 year. Petitioner has failed to
establish good faith reliance on the advice of a competent tax
adviser.
Respondent also determined that petitioner was liable for an
accuracy related penalty because the understatement was due to
negligence. Petitioner argues that it is not liable for the
negligence penalty because it relied on its accountant. For the
reasons set forth above, we are not persuaded by petitioner's
argument.
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