Norman E. Duquette, Inc. - Page 45




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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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Last modified: May 25, 2011