Joseph B. Leonard and Dorothy A. Cole Leonard - Page 12

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          Issue 2.  Negligence                                                        
               The second issue is whether petitioners are liable for the             
          addition to tax for negligence under section 6653(a)(1) for 1988.           
          Petitioners dispute the negligence addition to tax claiming they            
          are not knowledgeable about tax matters and relied on an                    
          accountant.  We disagree.  Freeman, the accountant who prepared the         
          original returns for petitioners, knew all of the facts surrounding         
          the transactions with Robert and informed petitioners that the              
          losses never could be deducted.  Not satisfied with Freeman’s               
          advice, petitioners later went to accountant White who advised              
          petitioners that the loss could be claimed.                                 
               Section 6653(a)(1) provides  that  if  any  part  of  an               
          underpayment of tax is the result of negligence or intentional              
          disregard of rules or regulations, 5 percent of the underpayment is         
          added to the tax.  Negligence is defined as the failure to exercise         
          the due care that a reasonable, prudent person would exercise under         
          similar circumstances.  Zmuda v.  Commissioner, 731 F.2d 1417, 1422         
          (9th Cir. 1984), affg. 79 T.C. 714 (1982);  Neely v.  Commissioner,         
          85 T.C. 934, 947 (1985).  Reliance on professional advice, by               
          itself, is not an absolute defense to negligence.  A taxpayer first         
          must demonstrate that his reliance was reasonable.  Freytag v.              
          Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th             
          Cir. 1990), affd. 501 U.S. 868 (1991).                                      
               Petitioners--both experienced attorneys--undoubtedly took a            
          keen interest in a possible deduction of the magnitude involved in          
          this case.  Freeman advised petitioners against taking a theft              

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