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(1) The adviser has sufficient expertise to justify reliance,
(2) the taxpayer provides necessary and accurate information to
the adviser, and (3) the taxpayer actually relies in good faith
on the adviser’s judgment. See, e.g., Ellwest Stereo Theatres,
Inc. v. Commissioner, T.C. Memo. 1995-610. Such is the case
here. Mr. Shane is an elderly man, and both he and Shane Michael
relied reasonably on their longtime accounting firm to prepare
their tax returns correctly. Although respondent ultimately
disallowed a small portion of Shane Michael's deductions as
unsubstantiated, we do not believe that Shane Michael was
negligent in claiming those deductions. Nor do we believe that
the Shanes were negligent when they failed to report the
dividends that resulted from respondent's disallowance of those
deductions, or the interest that Mr. Shane received from Shane
Michael.
We have considered all arguments by respondent for contrary
conclusions, and, to the extent not discussed above, find them to
be without merit.
Decisions will be entered
for petitioners.
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Last modified: May 25, 2011