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a reasonable basis for the failure to report its
liability for the personal holding company tax on
the returns.
In this connection, respondent notes that petitioner's
return preparer, Mr. Billy Caldwell, acknowledged that he
"was not aware of the personal holding company tax issue at
all before it was raised by respondent." In effect,
respondent argues that petitioner could have had no
reasonable basis for its failure to report personal holding
company tax.
To begin with, we note that petitioner does not
advance any reason why the portion of the understatement
for each of the years 1992 and 1993 that is attributable
to the passive loss adjustment, described above, is not a
substantial understatement of income tax that is subject
to the accuracy-related penalty. Accordingly, we hereby
sustain respondent's determination of the accuracy-related
penalty on the portion of the underpayment in 1992 and 1993
which is attributable to the passive loss adjustment.
The statutory provision under which an understatement
is reduced with respect to any item if the relevant facts
are adequately disclosed, section 6662(d)(2)(B)(ii), was
amended effective for returns due after December 31, 1993.
Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66,
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