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Dr. Hillman’s self-serving and conclusory testimony that he
discussed his show horse activity, and the applicable
regulations, with Mr. Adelman. Mr. Adelman was not called to
testify. The record demonstrates that the only records of the
show horse activity provided to Mr. Adelman were yearend
compilations or “bottom-line” figures, assembled by Dr. Hillman.
Had Mr. Adelman been provided more complete disclosure, for
example, he presumably would have advised Dr. Hillman of the
necessity of allocating the expenses of the horses’ upkeep
between those horses used in the business and those not so used.
One would also expect a fully informed professional to advise of
the necessity of recording and reporting the horses’ winnings, if
a business were in fact being conducted. We conclude that
petitioners have failed to show that they made sufficient
disclosure to their accountant to invoke the reasonable cause
exception to the accuracy-related penalties.14
Petitioners have not addressed the portion of the
underpayment attributable to the disallowance of certain of Dr.
Hillman’s business mileage deductions. Accordingly, respondent’s
14 Petitioners also claim on brief that they had
“substantial authority” for the positions taken on their returns.
There is no “substantial authority” exception to the imposition
of the accuracy-related penalty for negligence. See Wheeler v.
Commissioner, T.C. Memo. 1999-56.
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