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positions regarding the trademark and royalties. As we have
already explained, petitioners did not have substantial factual
“authority” for their reporting position on the trademark and
royalties. The fact pattern here does not fit within the cases
cited by petitioners. Moreover, petitioners clearly fell within
the ambit of section 482 and the appropriate regulations with
respect to the trademark and royalties.
Petitioners also argue that they had reasonable cause within
the meaning of section 1.6664-4(b)(1), Income Tax Regs. The
determination of whether a taxpayer acted with “reasonable cause
and in good faith” is made on a case-by-case basis, taking into
account all pertinent facts and circumstances, the most important
of which is the extent of the taxpayer’s efforts to assess his
proper tax liability. Petitioners argue that they had reasonable
cause here because of their reliance on the advice of
professionals, such as an appraiser. As we have already
explained above, petitioners’ reliance on Bain was not well
founded.
Finally, as a computational matter, the 40-percent penalty
of section 6662(h) applies to the trademark adjustment because
there is a gross valuation misstatement. In that regard, the $20
million reporting position was 25 percent or less than the fair
market value or arm’s-length price. Because we have found that
the adjustment should be made in 1992, section 6662(h) will apply
only to the trademark adjustment for the 1992 year. The royalty
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