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Mr. Kelly contests petitioners' liability for accuracy-
related penalties using largely the same arguments he used to
challenge the additions to tax for 1986 and 1987. There is no
dispute that the negligence penalty applies to the portion of the
underpayment attributable to petitioners' unsubstantiated
employee business expense deductions. Valadez v. Commissioner,
T.C. Memo. 1994-493; sec. 1.6662-3(b)(1), Income Tax Regs.
Reliance on professional tax advice may qualify for the
reasonable cause and good faith exception. Sec. 1.6664-4(b)(1),
Income Tax Regs. Yet inasmuch as Mr. Kelly failed to prove the
accuracy of the information on which petitioners' return preparer
based his judgment, he cannot avoid application of the negligence
penalty to the ordinary loss deductions. Eyefull Inc. v.
Commissioner, T.C. Memo. 1996-238; Saghafi v. Commissioner, T.C.
Memo. 1994-238.
Mr. Kelly's contention that petitioners adequately disclosed
the relevant facts relating to their treatment of the trading
losses is likewise without merit. Petitioners' returns for 1989
through 1992 describe Mr. Kelly's business as "trader", and an
attachment to each return lists Mr. Kelly's trades during the
year. This information does not constitute adequate disclosure.
The adequate disclosure exception to the negligence penalty is
provided for in sections 1.6662-3(c) and -4(f), Income Tax Regs.,
which became effective for returns due after December 31, 1991.
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