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No penalty shall be imposed under section 6662(a) with
respect to any portion of an underpayment if it is shown that
there was reasonable cause and that the taxpayer acted in good
faith. See sec. 6664(c). Whether a taxpayer acted with good
faith depends upon the facts and circumstances of each case. See
sec. 1.6664-4(b)(1), Income Tax Regs. Reliance on the advice of
a professional tax adviser constitutes reasonable cause and is in
good faith if, under all the circumstances, the reliance was
reasonable and the taxpayer acted in good faith. See id.
Reliance on a tax adviser or return preparer may be reasonable
and in good faith if the taxpayer establishes: (1) The adviser
or return preparer had sufficient expertise to justify reliance;
(2) the taxpayer provided necessary and accurate information; and
(3) the taxpayer actually relied in good faith on the adviser’s
or return preparer’s judgment. See, e.g., Sather v.
Commissioner, T.C. Memo. 1999-309; Ellwest Stereo Theatres of
Memphis, Inc. v. Commissioner, T.C. Memo. 1995-610, and cases
cited therein.
From 1982 through the years in issue, petitioners relied on
the accounting services of Walters, who has been a certified
public accountant since 1977. Petitioners retained Walters to
prepare both their individual tax returns and tax returns for
their several business entities. Walters’ experience and
qualifications were sufficient to warrant reliance upon his
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Last modified: May 25, 2011