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On brief, the individual petitioners argue that they should
not be liable for the negligence penalty because “the
Commissioner at least impliedly approved a similar deduction on
their 1990 individual income tax return.” The record does not
establish that respondent either implicitly or expressly approved
a similar deduction in 1990. The only pertinent evidence apart
from Mowrey’s vague and self-serving testimony5 is respondent’s
no-change letter from 1990 and a revenue agent’s report which
indicates that the only items questioned in the 1990 audit were a
charitable contribution deduction and a deduction for investment
expenses. There is no evidence that the revenue agent was even
aware of, much less approved, petitioners’ diversion of income to
Crestmark.
In support of their position, the individual petitioners
cite Matthews v. Commissioner, 92 T.C. 351 (1989), affd. 907 F.2d
5 On direct examination, Mowrey testified as follows:
Q. Did you pay Crestmark that year, 1990, for the
same type of services that you later paid them in
1993?
A. Yes, sir.
Q. In the audit, do you know what the outcome of the
audit was?
A. Well, I don’t know all these fancy words that he
was talking about, but the bottom line is, to me,
was the IRS said, you know, This is not a problem;
this is fine, you know.
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