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However, on his 1991 return, petitioner deducted the entire
amount of expenses incurred in 1991 as trade or business
expenses. We have determined that petitioner's deductions for
1991 are allowed only as expenses incurred in the production of
income under section 212, subject to the 2-percent limitation
imposed by section 67.
We find no affirmative evidence of negligence or disregard
of the rules or regulations. We have found petitioner to be an
intelligent and credible witness. Even a taxpayer well-versed in
the Code requirements for carrying on a trade or business often
encounters difficulty in determining what would satisfy the
requirements. We find that petitioner was acting in reasonable
good faith when he concluded that the items in question were
deductible as trade or business expenses. Sec. 6664(c)(1); see
Kasey v. Commissioner, 54 T.C. 1642 (1970), affd. per curiam 457
F.2d 369 (9th Cir. 1972).
While we have disagreed with petitioner's characterization
of his expenses for 1991, and found his claims of business
expense deductions to be incorrect, petitioner had a reasonable
basis for his claims. After audit, petitioner received a no-
change letter in March 1992 for the taxable year 1989, stating
that petitioner’s business deductions for that year were proper.
Petitioner timely filed his 1991 Federal income tax return in
April 1992, shortly after receipt of the no-change letter. It
was reasonable for petitioner to rely on the no-change letter as
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