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Daniels testified that, if she had not had the time to view all
of petitioners' documents at the first meeting, she "would have
asked for them on the document request to be presented at the
second appointment." When asked if she submitted a document
request after the first meeting, Ms. Daniels said, "Yes."
In the instant case, except as to the unreported income
conceded by petitioners, see supra note 1, petitioners'
underpayment resulted from their failure to substantiate at trial
the deductions that they claimed on their return. Petitioners'
inability to produce any documentation at trial resulted from the
loss of their records in the house fire. We are satisfied,
however, that petitioners possessed substantiation for most if
not all of their deductions when they filed their return.
Consequently, we conclude that petitioners had reasonable cause
and acted in good faith as to the underpayment resulting from the
deductions in issue. Accordingly, we hold that petitioners are
not liable for the penalty pursuant to section 6662(a) on the
understatement resulting from the disputed deductions and that
petitioners are liable for the penalty on the underpayment
resulting from the unreported income conceded by petitioner.
To reflect the foregoing,
Decision will be entered
under Rule 155.
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Last modified: May 25, 2011