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In this case, Martin, as president of petitioner, and Arnold both
relied on legal advice from Mr. Hewit throughout the protracted
negotiations with H�agen-Dazs. Even though Mr. Hewit never gave a
written tax opinion to petitioner or Arnold or Martin, Martin and
petitioner were entitled to rely and proceed on the assumption that
the transactions at issue were nontaxable to petitioner because of the
way Mr. Hewit had structured the transactions and drafted the
documents effecting the transactions that separated the two business
lines. Mr. Hewit, in turn, sought advice from third-party tax
professionals on how to structure a tax-efficient solution to resolve
the growing dispute between Martin and Arnold over the future
direction of petitioner as an ice cream distributor. Like the advice
sought by the taxpayer in Sim-Air, USA, Ltd. v. Commissioner, supra at
201, the advice that petitioner sought from Mr. Hewit, who in turn
also sought expert advice, was subject to section 355, a complex
section of the Code.34 We find that Martin and petitioner acted as
ordinarily prudent business persons would under the circumstances and
that petitioner is not liable for an addition to tax under section
6653(a)(1).
b. Substantial Understatement
For tax year 1988, section 6661(a) provides for an addition to
tax of “25 percent of the amount of any underpayment attributable” to
“a substantial understatement of income tax for any taxable year”, for
34 We note the recent debate over the amendment to sec. 355
enacted in sec. 1012, Taxpayer Relief Act of 1997, Pub. L. 105-
34, 111 Stat. 788, 914.
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