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or in a statement attached to the return and there is a
reasonable basis for the tax treatment of that item, or (3) is
due to reasonable cause and petitioners acted in good faith. See
secs. 6662(d)(2)(B)(i) and (ii), 6664(c)(1); sec. 1.6664-4(c),
Income Tax Regs. Petitioners do not contend that they have
substantial authority for their positions or that they adequately
disclosed their positions on their returns. They contend only
that they had reasonable cause and acted in good faith.
Petitioners concede that they may not deduct as a bad debt
loss $37,606 of the $75,345 they claimed as a litigation expense
for 1994. We have concluded that they may not deduct any amount
as a litigation expense for 1994.
Petitioners contend that they had reasonable cause and acted
in good faith because they relied on their accountant and the
transaction was complex. Petitioners point out that they are not
required to question whether their accountant is competent,
citing Streber v. Commissioner, 138 F.3d 216, 220 (5th Cir.
1998), revg. T.C. Memo. 1995-601, and Reser v. Commissioner, 112
F.3d 1258 (5th Cir. 1997), affg. in part and revg. in part
(including on this issue) T.C. Memo. 1995-572.
To establish good faith reliance on the advice of a
competent adviser, a taxpayer must show: (1) That he or she
provided the return preparer with complete and accurate
information, (2) that an incorrect return resulted from the
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