Dennis W. Stark - Page 33






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          Respondent's determinations are presumed correct, and petitioner            
          bears the burden of proving that the penalties do not apply.                
          Rule 142(a); Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972).            
               Section 6662(a) imposes a penalty in an amount equal to 20             
          percent of the portion of an underpayment of tax attributable to            
          any substantial understatement of income tax.  Sec. 6662(b)(2).             
          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.  Sec. 6662(d)(1)(A).  No penalty under section 6662(a) is           
          imposed, however, with respect to any portion of an underpayment            
          if there was reasonable cause for such portion and the taxpayer             
          acted in good faith with respect thereto.  Sec. 6664(c)(1).                 
               Petitioner contends that there was reasonable cause for the            
          tax treatment of the items at issue because the deductions                  
          claimed by Lakeview were based on the advice of a certified                 
          public accountant (C.P.A.).  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.  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.  Jackson v.                      


               12(...continued)                                                       
          event, petitioner’s claim of reasonable cause under sec.                    
          6664(c)(1), discussed infra, would eliminate the negligence                 
          penalty under sec. 6662(b)(1) to the same extent as the penalty             
          for substantial understatement under sec. 6662(b)(2).                       
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