Edward and Ruth Kelly - Page 24

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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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