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relies on a competent professional adviser. United States v.
Boyle, 469 U.S. 241, 250-251 (1985); Freytag v. Commissioner, 89
T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd.
501 U.S. 868 (1991). The reliance must be reasonable, in good
faith, and based upon full disclosure. Freytag v. Commissioner,
supra at 888-889.
Respondent alleges that petitioner was negligent under
section 6653(a)(1) for failing to report income on his Federal
income tax return for 1987 relating to managed account funds.
Petitioner argues that he reasonably relied on his accountant and
tax return preparer, and petitioner emphasizes that he disclosed
-- to the accountant who prepared his 1987 Federal income tax
return and to respondent on his 1987 return -- facts relating to
his receipt of managed account funds.
Petitioner reasonably relied on his accountant’s tax advice
regarding nontaxability of managed account funds, and no evidence
in the record suggests that petitioner acted in bad faith with
regard to his reporting thereof. For 1987, we reject
respondent's determination of the negligence addition to tax
under section 6653(a)(1).
The substantial understatement addition to tax under section
6661(b)(1) does not apply where a taxpayer discloses adequate
facts on the tax return to disclose to respondent the nature of
the item in question. See sec. 1.6661-4(b)(2), Income Tax Regs.
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