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Section 6664(c)(1) of the Internal Revenue Code provides a
reasonable cause exception to the accuracy-related penalty.
Petitioner argues that it is within the exception under
section 6664. Petitioner argues that it held an honest and good
faith belief about the deductibility of its unrecovered advances
based on its reasonable reliance on MBS to ensure tax compliance.
Petitioner also argues that it was unsophisticated in tax laws
and that it relied on MBS to provide Mr. Shindel with enough
information to ensure proper compliance with those laws.
Although MBS failed to do its job properly, petitioner concludes,
petitioner’s reliance on them to do a proper job was consistent
with ordinary business care and prudence under the circumstances.
We do not agree. Reasonable reliance on a tax adviser is
consistent with ordinary business care and prudence only in
certain cases. In those cases, the taxpayer must establish that:
(1) The adviser had sufficient expertise to justify reliance,
(2) the taxpayer provided necessary and accurate information to
the adviser, and (3) the taxpayer actually relied in good faith
on the adviser’s judgment. See, e.g., Ellwest Stereo Theatres of
Memphis, Inc. v. Commissioner, T.C. Memo. 1995-610. Mr. Shindel
prepared and signed petitioner’s tax returns for the years in
issue. His experience and qualifications were sufficient to
warrant reliance upon his judgement. Although we find that
petitioner has met the first prong, we find that it has failed to
satisfy the remaining prongs. Petitioner did not exercise due
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