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4. Accuracy-Related Penalty
Respondent determined that petitioner is liable for a
section 6662(a) accuracy-related penalty. The penalty applies to
the portion of petitioner's underpayment that is attributable to
a substantial understatement of income tax. Sec. 6662(b)(2). If
petitioner establishes that he acted in good faith and there was
reasonable cause for claiming the deductions, an accuracy-related
penalty will not be imposed on the portion of the underpayment
relating to such deductions. See sec. 1.6664-4(a), Income Tax
Regs. Reliance on an accountant may demonstrate reasonable cause
and good faith. Sec. 1.6664-4(b)(1), Income Tax Regs.
Petitioner contends that he should not be liable for the
accuracy-related penalty on the portion of the underpayment that
relates to the bad debt deductions because he reasonably relied
on the advice of his accountant.
While in prison, petitioner hired Mr. Casey to prepare the
1991 return. Petitioner supplied Mr. Casey with all the
available relevant records and did not withhold any information.
In addition, petitioner used his limited telephone privileges to
consult with Mr. Casey. Mr. Casey proceeded incorrectly to
report petitioner's bad debt loss as a $50,000 ordinary loss on
Form 4797 (Sales of Business Property) and a $3,000 capital loss
on Schedule D (Capital Gains and Losses). Petitioner took
reasonable efforts to assess his proper tax liability and
reasonably relied on Mr. Casey's expertise in reporting, and
determining the deductibility of, the bad debt. Thus, petitioner
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