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Issue 2. Section 6662(a) Accuracy-Related Penalties
The other issue for decision is whether petitioners are liable
for the section 6662(a) accuracy-related penalties for the years in
issue.
Pursuant to section 6664(c)(1), a section 6662 penalty does
not apply to any portion of an underpayment if reasonable cause
existed and the taxpayers acted in good faith. Pursuant to section
1.6664-4(b)(1), Income Tax Regs., all facts and circumstances must
be examined in order to determine whether a taxpayer acted with
reasonable cause and in good faith.
Petitioners assert that they had reasonable cause to deduct
Cola, Inc.'s losses on their individual Federal income tax returns
for the years in issue. They contend that they relied in good
faith upon Sam White who prepared their returns for the years in
issue. Mr. White did not testify due to the fact he was
incarcerated at the time of trial.
In order to establish good faith reliance on the advice of an
adviser, the taxpayer must prove: (1) He gave the return preparer
complete and accurate information, (2) an incorrect return was a
result of the preparer's mistakes, and (3) the taxpayer believed in
good faith that he was relying on a competent return preparer's
advice. See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662
(1987).
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