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shown that there was reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.
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. Sec. 1.6664-
4(b)(1), Income Tax Regs. Circumstances that may indicate
reasonable cause and good faith include an honest
misunderstanding of fact or law that is reasonable in light of
all of the facts and circumstances. Id.
With regard to the underpayment due to the underreporting of
income, we are convinced that petitioner acted with reasonable
cause and in good faith. During the year in issue, Key
repeatedly changed the method by which it compensated petitioner.
Petitioner undoubtedly relied upon an information return,
prepared by Key, when he prepared his 1994 income tax return.
The information return prepared by Key failed to disclose his
commission income. Reliance on an information return can
constitute reasonable cause and good faith if such reliance is
reasonable and the taxpayer acted in good faith. Id. Given the
facts and circumstances of this case, including petitioner's
confusion about his tax obligations during the period in issue,
we find that petitioner acted with reasonable cause and good
faith when he failed to report the commission income.
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