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portion of an underpayment attributable to reasonable cause.
Reasonable reliance on the advice of a tax professional may
constitute reasonable cause. Sec. 1.6664-4(b), Income Tax Regs.
Petitioners contend that they exercised due care in
reporting the advances as loans. Petitioners also contend that
they reasonably relied on professional advice and that, as a
result, their underpayments were attributable to reasonable
cause. Messrs. McCurley and Hall did not unconditionally intend
to repay the advances, and they knew or reasonably should have
known that there was only a remote possibility that SDI would
demand repayment of their advances. As a result, we reject
petitioners' contentions and hold that they are liable for the
accuracy-related penalties for negligence. Because we have held
that the McCurleys did not understate their income in 1992,
however, they are not liable for the negligence penalty for that
year.
B. Section 6661 Addition to Tax for Substantial
Understatement
Section 6661(a), applicable to the McCurleys' 1988 tax year,
provides for an addition to tax equal to 25 percent of the amount
of an underpayment attributable to a substantial understatement.
See Pallottini v. Commissioner, 90 T.C. 498, 503 (1988). The
term "understatement" means the excess of (1) the amount of tax
required to be shown on the return over (2) the amount of tax
shown on the return, reduced by any rebate. Sec. 6661(b)(2)(A).
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