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presented here, we upheld the imposition of the fraud penalty under
section 6663(a). Within the fraud context, we find the situation
in Grossman distinguishable from that involved herein. The taxpayer
in Grossman was a practicing lawyer specializing in Federal income
taxation. He held an LL.M. in taxation from New York University
and had previously worked for the Internal Revenue Service. He
obviously possessed a substantial level of sophistication in the
area of tax law. Here, petitioners, although highly intelligent,
do not possess the same level of tax expertise.
We recognize that petitioners have grossly undervalued the
stock bonus awards and charged personal items as business expenses.
We have no doubt that petitioners’ conduct in this case comes close
to the line that separates a conscious “disregard of rules or
regulations” from an “intent to evade taxes believed to be owing”.
However, even where there is a strong suspicion of an intent to
evade taxes, we are hesitant to impose the section 6663(a) penalty
unless we are convinced that the Commissioner satisfied his burden
of proof. See Toussaint v. Commissioner, 743 F.2d 309, 312 (5th
Cir. 1984), affg. T.C. Memo. 1984-25; Petzoldt v. Commissioner, 92
T.C. 661, 700 (1989). Here, a complete review of the record has
convinced us that respondent has failed to do so. Accordingly, we
decline to impose the fraud penalty upon petitioners.
Petitioners, however, have failed to prove that they acted
with reasonable cause and in good faith. Evidence in the record
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