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additional taxes from his wages in order to avoid the estimated
payment penalty he had incurred in prior years, suggesting that
his decision to deduct his trading losses as ordinary losses was
merely an afterthought; and perhaps most important, the false
characterization of his trading activity and business name on the
1980 Schedule C, suggesting that he knew that accurate
description would trigger inspection and ultimate disallowance of
the ordinary loss deduction by the Internal Revenue Service. Id.
at 1030. In Diamond, the defendant was convicted of filing false
returns, not, as petitioner suggests, simply because he
mischaracterized his commodities losses. The mischaracterization
of the losses was only a small part of the defendant's
sophisticated scheme to avoid taxes.
Recent developments, subsequent to issuance of the Opinion
and our reliance on Reid v. Commissioner, T.C. Memo. 1989-294,
confirm that Mr. Kelly's position, although incorrect, was not
groundless or frivolous. Other individual taxpayers, during
years in issue in the case at hand, made good faith claims that
they were entitled to ordinary loss treatment as dealers in
securities. The Court has rejected these claims, Marrin v.
Commissioner, T.C. Memo. 1997-24; Hart v. Commissioner, T.C.
Memo. 1997-11, and upheld the imposition of additions for late
filing, as well as negligence and substantial understatement
additions, in the face of the taxpayers' arguments that they
believed that their ordinary losses from securities transactions
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