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circumstances. "Circumstances that may indicate reasonable cause
and good faith include an honest misunderstanding of * * * law
that is reasonable in light of all of the facts and
circumstances, including the experience, knowledge, and education
of the taxpayer." Sec. 1.6664-4(b)(1), Income Tax Regs.
Petitioner bears the burden of proving facts showing good faith
and reasonable cause. See Rule 142(a).
Petitioner defends against respondent’s determination of a
penalty for negligence by claiming: “Petitioner has maintained
comprehensive records and had a reasonable basis for all aspects
of the tax return.” Petitioner concedes that Norman has passed
the examination to be a certified public accountant. Respondent
argues that "[petitioner] intentionally disregarded rules
prohibiting deductions for personal items and deducted items for
which it had been reimbursed." Respondent also argues that
petitioner failed to keep adequate records under sections 6001
and 274(d).
To the extent we have sustained respondent’s adjustments, we
have done so principally because petitioner has failed to show
that its deductions represented expenses incurred in carrying on
petitioner’s business, rather than expenses incurred to benefit
the Duquettes, personally. With respect to such deductions, it
appears to us that Norman believed that, if he produced corporate
resolutions and policies authorizing such expenses, no further
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