- 41 -
reasonable cause and in good faith is made case by case, taking
into account all pertinent facts and circumstances. See Compaq
Computer Corp. & Subs. v. Commissioner, 113 T.C. 214, 226 (1999);
sec. 1.6664-4(b)(1), Income Tax Regs. In this case, there is
ample evidence that Henry and Esther knew or had reason to know
that the payments made by HJA on the FirsTier note and the
Chevrolet debt generated taxable income to them as determined in
this opinion, including (1) the Baird, Kurtz letter explaining
the consequences of the EOA, (2) Forms 1099 and letters of
explanation issued by HJA showing the amount of covenant not to
compete payments made to Henry each year, (3) the fact that Henry
and Esther reported as income some of the covenant not to compete
payments made in 1990, (4) the establishment and operation of the
sweep account, which coordinated the covenant payments with
payments on the FirsTier note and the Chevrolet debt, and (5)
Henry’s conflicting positions with regard to his liability for
the FirsTier note and the Chevrolet debt taken in the State
22(...continued)
disclosure claim, argued in his opening brief that Henry and
Esther’s disclosures on their 1992 and 1996 returns were not
adequate, Henry and Esther still did not argue that they made an
adequate disclosure for those years. Since Henry and Esther did
not raise adequate disclosure as a defense to the substantial
understatement prong of the accuracy-related penalty at any point
during the trial or briefing of this case, the issue of whether
the 1992 and 1996 disclosures were adequate is not before us.
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