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No accuracy-related penalty shall be imposed with respect to
any portion of an underpayment if it is shown that there was
reasonable cause for such portion and that the taxpayer acted in
good faith with respect to such portion. See sec. 6664(c)(1).
Burien Nissan and the Johnstons claim that a reasonable person
would have taken a similar position in their income tax returns.
We have already rejected Burien Nissan’s explanations for
deducting monthly payments to Mr. Johnston for complying with the
noncompetition agreement, and Burien Nissan has conceded that it
cannot deduct the cost of redeeming stock it purchased from Mr.
Johnston.
With regard to the Johnstons, no legal authority was
provided to justify the omission of $45,483 in income in 1994 and
$290,000 from income in 1995. We rejected the Johnstons’
arguments as to why they failed to report these items, and the
Johnstons conceded that they were not entitled to a capital loss
for their 1994 sale of Burien Nissan stock.
Burien Nissan and the Johnstons also argue that the
accuracy-related penalties should be waived because there was a
reasonable basis for their income tax positions since they relied
on the advice of a tax adviser. Reliance on professional advice
does not necessarily demonstrate reasonable cause and good faith.
See sec. 1.6664-4(b)(1), Income Tax Regs. In order for a
taxpayer’s reliance on advice to be reasonable so as to negate a
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