National Industrial Investors, Inc. - Page 20

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                  Although we ruled that respondent failed to carry her burden                         
            of proof to establish negligence for this penalty asserted in an                           
            amendment to her answer, a factual and legal predicate existed                             
            for respondent's position.  Neither Charles Byrne nor the person                           
            who represented the seller could explain the circumstances of the                          
            Lot 51 transaction.  See Grace Foreign Exch. Corp. v.                                      
            Commissioner, supra.                                                                       
                  Many facts indicated to respondent that the underpayment due                         
            to the Lot 51 transaction resulted from petitioner's failure to                            
            make a reasonable attempt to comply with the provisions of the                             
            Internal Revenue Code, as required to establish negligence.                                
            Respondent demonstrated that petitioner's representatives knew of                          
            certain documents in evidence in this case, and were familiar                              
            with the Lot 51 transaction at the time the return was filed.                              
            NII's representatives knew that Lot 51 was of far greater value                            
            than the $38,000 note given in exchange for it in 1990.                                    
            Furthermore, Charles Byrne was sophisticated in business matters.                          
            Testimony revealed a lack of cooperation with respondent as well                           
            as attempts to conceal the transaction and mislead petitioner's                            
            own accountant.  Finally, documentary evidence established the                             
            substantial value of Lot 51.  Thus, we hold that respondent was                            
            substantially justified in her position.                                                   








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