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accuracy-related penalty under section 6662(a) does not apply to
any part of an underpayment if the taxpayer shows that there is
reasonable cause for that part of the underpayment and that the
taxpayer acted in good faith based on the facts and
circumstances. Section 6664(c).
Mr. French, petitioner's attorney during the negotiations
with the credit union, was a trial lawyer, not a tax lawyer.
Because he thought petitioner needed competent tax advice about
how the settlement payments should be reported for Federal income
tax purposes, he recommended that petitioner consult James L.
Mohr, a certified public accountant and tax specialist with KPMG
Peat Marwick. He introduced petitioner to Mr. Mohr, who was
hired to advise petitioner with respect to the tax aspects of the
settlement. KPMG Peat Marwick prepared petitioners' Federal
income tax returns for 1988, 1989, and 1990. Petitioner
consulted with Mr. Mohr and provided him with all the necessary
and relevant information required for the preparation of the
returns. The information was complete and accurate. Mr. Mohr
did the tax research to determine the then current status of the
law under section 104(a)(2). Although he thought the settlement,
for the most part, was based on tort type claims that resulted in
the payments' being excludable from gross income, he advised
petitioner to report 25 percent of the settlement payments as
taxable in an attempt to be reasonable and to avoid future
problems in dealing with the issue if questioned on audit by the
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