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the firm to assure that tax returns of managing directors
contained matters properly reported. Barry M. Strauss testified,
and we are satisfied, that Associates’ personnel were qualified
as tax experts, reviewed petitioner’s returns, were aware of
Ballard Marine’s activities, and advised petitioner that his
reporting positions were proper.1 Petitioner can rely on such
advice to avoid an addition to tax for negligence. See, e.g.,
Horn v. Commissioner, 90 T.C. 908, 942 (1988); Conlorez Corp. v.
Commissioner, 51 T.C. 467, 475 (1968). Accordingly, we have
found that petitioner was not negligent, and we sustain no
addition to tax for negligence.
B. Substantial Understatement of Liability
Respondent has determined an addition to tax under section
6661 for 1987. Section 6661(a) provides for an addition to the
tax for any year for which there is a substantial understatement
of income tax. A substantial understatement is defined as an
understatement which exceeds the greater of 10 percent of the tax
required to be shown on the return for the year or $5,000. Sec.
6661(b)(1)(A). The amount of the addition to tax is 25 percent
of the underpayment attributable to a substantial understatement.
Pallottini v. Commissioner, 90 T.C. 498 (1988). The amount of
the understatement, however, is reduced by amounts attributable
1 That extends to certain adjustments relating to itemized
deductions that were the subject of the second stipulation of
facts and that were conceded by petitioner.
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