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the advice of counsel or a qualified accountant can, in certain
circumstances, be a defense to the accuracy-related penalty for
negligence. See, e.g., Ewing v. Commissioner, 91 T.C. 396,
423-424 (1988), affd. without published opinion 940 F.2d 1534
(9th Cir. 1991); Jackson v. Commissioner, 86 T.C. 492, 539-540
(1986), affd. 864 F.2d 1521 (10th Cir. 1989); Pessin v.
Commissioner, 59 T.C. 473, 489 (1972); Conlorez Corp. v.
Commissioner, 51 T.C. 467, 475 (1968). In those cases, the
taxpayer must establish: (1) The adviser had sufficient
expertise to justify reliance, (2) the taxpayer provided
necessary and accurate information to the adviser, and (3) the
taxpayer actually relied in good faith on the adviser’s judgment.
See Ellwest Stereo Theatres v. Commissioner, T.C. Memo. 1995-610.
The record shows that petitioners acted reasonably with
respect to the items reported on their 1994 tax return. They
consulted their long-time business and tax adviser, an
experienced and knowledgeable accountant, and they supplied him
with the information necessary to prepare their return. The
C.P.A. advised petitioners on what he believed was the correct
reporting position of the items reported in the return, and
petitioners relied on and followed his advice. Under the facts
herein, we believe that petitioners' reliance on the C.P.A. to
prepare a correct return was reasonable, and we hold for them on
this issue.
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