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Income Tax Regs. An understatement of tax is substantial if it
exceeds the greater of 10 percent of the tax required to be shown
in the return or $5,000. See sec. 6662(d)(1)(A)(i) and (ii).
The penalty for negligence or disregard of rules or
regulations or for the substantial understatement of income tax
is inapplicable, however, to any portion of the underpayment for
which the taxpayer can show that he acted in good faith and had
reasonable cause. See sec. 6664(c)(1). 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 the
relevant facts and circumstances. See sec. 1.6664-4(b)(1),
Income Tax Regs. A taxpayer may demonstrate reasonable cause if
he can show that he relied in good faith on a qualified adviser
after full disclosure of all necessary and relevant information.
See Jackson v. Commissioner, 86 T.C. 492, 539-540 (1986), affd.
864 F.2d 1521 (10th Cir. 1989); Paula Constr. Co. v.
Commissioner, 58 T.C. 1055, 1061 (1972), affd. without published
opinion 474 F.2d 1345 (5th Cir. 1973); sec. 1.6664-4(b)(1),
Income Tax Regs.
Petitioners assert they have shown reasonable cause because
their return was prepared by a certified public accountant.
Other than petitioner’s self-serving testimony that the
accountant was “aware of the settlement”, there is no evidence in
the record concerning the information that was provided to the
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