Allen C. Chamberlin and Martha L. Chamberlin - Page 31

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          preparer, who told them that they could deduct NOL’s for their              
          investments in and loans made to Pharmacare, The Chamberlin                 
          Corp., or Chamberlin Parenteral.  Therefore, petitioners are not            
          liable for negligence penalties from 1985 through 1993.                     
          Substantial Understatement                                                  
               Taxpayers are liable for penalties for substantial                     
          understatement of tax liability pursuant to section 6662(b)(2) if           
          the understatement exceeds the greater of 10 percent of the                 
          correct tax or $5,000.  See sec. 6662(d)(1)(A) and (B).  The term           
          "understatement" is defined as the excess of the amount of tax              
          required to be shown on the return for the taxable year over the            
          amount of tax shown on the return for the taxable year.  Sec.               
          6662(d)(2)(A).  An exception exists where the taxpayer has relied           
          on invalid advice of a paid tax preparer if, under all                      
          circumstances, such reliance was reasonable and the taxpayer                
          acted in good faith.  See sec. 1.6662-4(g)(4), Income Tax Regs.             
               For the reasons previously discussed under the negligence              
          analysis above, we conclude that petitioners’ reliance on the tax           
          liability calculated by their paid tax preparer was reasonable.             
          Therefore, penalties for substantial understatement shall not               
               To reflect the foregoing,                                              
                                             Decision will be entered                 
                                        under Rule 155.                               

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