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information in the record, we conclude that, regardless of what
an IRS employee may have mentioned to petitioner in the early
1980’s, by the time of the years in issue petitioner should have
sought advice from experts who could evaluate the implications of
a decade of increasing losses in petitioner’s videotape activity.
In light of the increasing magnitude of petitioner’s loss
deductions, a reasonable and ordinarily prudent person would have
sought such advice. Petitioner failed to make a reasonable
attempt to comply with the provisions of sections 183, 162, and
212, and the decade-old advice by the IRS employee is not
reasonable cause for petitioner’s failure.
Petitioner’s reliance on Osteen v. Commissioner, 62 F.3d 356
(11th Cir. 1995), is misplaced. Osteen dealt with whether the
taxpayers therein had “substantial authority” for their tax
treatment of an item, within the meaning of former section
6661(b)(2)(B)(i). Osteen v. Commissioner, 62 F.3d at 359. That
provision appears now as section 6662(d)(2)(B)(i), a
qualification in the application of the substantial
understatement addition to tax under section 6662. The
substantial authority language does not appear in section 6662(c)
(relating to the definition of “negligence”), nor does it appear
in section 6664(c)(1) (relating to the reasonable cause
exception). For an example of the differences between a
negligence analysis and a substantial-understatement analysis see
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