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it properly. Valadez v. Commissioner, T.C. Memo. 1994-493;
sec. 1.6662-3(b), Income Tax Regs.
The accuracy-related penalty does not apply to any part of
an underpayment for which the taxpayer had reasonable cause and
acted in good faith. Sec. 6664(c)(1). In order for reliance on
the judgment of a competent tax return preparer to qualify for
this exception, the taxpayer must demonstrate that the return
preparer formed his judgment on the basis of information that the
taxpayer believed, and had reason to believe, was complete and
accurate. United Circuits, Inc. v. Commissioner, T.C. Memo.
1995-605; Conway v. Commissioner, T.C. Memo. 1994-405; Saghafi v.
Commissioner, T.C. Memo. 1994-238; sec. 1.6664-4(b)(1), Income
Tax Regs.
The underpayments for TYE 8/31/90 and TYE 8/31/91 are
attributable to a bad debt deduction that was conceded before
trial and unreasonable accumulations of earnings. Petitioner
presented no evidence in regard to the basis for the bad debt
deduction that it did not litigate. It could offer scarcely more
documentation to substantiate the business plans by which it
attempted to justify its accumulations. The underpayments are
therefore attributable to negligence.
Petitioner takes the position that the unsubstantiated
positions to which the underpayments are attributable can be
justified by its reliance on Modern. Shindel prepared and signed
petitioner’s tax returns for both years. His experience and
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