- 17 -
reasonable and ordinarily prudent person would do under the same
circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
The penalty does not apply to any portion of an underpayment for
which there was reasonable cause and with respect to which the
taxpayer acted in good faith. Sec. 6664(c). Respondent's
determination imposing the accuracy-related penalty is presumed
correct, and petitioners bear the burden of proving that they are
not liable for the accuracy-related penalty imposed by section
6662(a). Rule 142(a); Tweeddale v. Commissioner, 92 T.C. 501,
505 (1989).
Although we have sustained respondent's determination that
petitioners did not have the requisite profit objective, we find
that petitioners were not negligent. Petitioners claimed the
deductions relating to Silk Oak with a reasonable and good faith
application of the law. Accordingly, we do not sustain
respondent's determination that petitioners are liable for the
accuracy-related penalty under section 6662(a). Connolly v.
Commissioner, T.C. Memo. 1994-218, affd. without published
opinion 58 F.3d 637 (5th Cir. 1995).
To reflect the foregoing,
Decision will be entered
for respondent as to the
deficiencies and for
petitioners as to the
penalties.
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