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cannot avoid the addition to tax or penalties on the basis of
reliance on its tax preparer, because it did not provide Nakamura
with the records or other information sufficient to prepare its
returns accurately. Metra Chem. Corp. v. Commissioner, 88 T.C.
at 662. The evidence justifies imposition of the addition to tax
and penalties for negligence.
For 1988, we apply the addition to tax to the entire
understatement of tax. Sec. 6653(a)(1). For years after 1988,
the penalty applies only to the portion of the understatement
attributable to negligence. Sec. 6662(a). For those years,
petitioners did not prove that any of the adjustments conceded by
Toraya or decided by the Court in favor of respondent were not
attributable to negligence. Accordingly, for 1989 through 1991,
we apply the penalty for negligence to the entire understatement
of tax for each year.
Section 6661
Respondent determined that Toraya is liable for an addition
to tax for substantial underpayment of tax under section 6661 for
1988. Petitioners contend that Toraya is not liable for the
addition to tax under section 6661, because it relied in good
faith on Nakamura to properly prepare its tax returns for the
years in issue. Respondent contends that Toraya is liable for
the addition to tax under section 6661, because petitioners
failed to prove that Toraya (1) acted in good faith or had
reasonable cause for the understatement of income on the 1988
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