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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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