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period had been applied to petitioner’s individual return.
The evidence in the record persuades us that petitioner did
not know, at the time he filed his 1991 individual income tax
return, of his accountant’s error in applying the income from
August 1 through November 14, 1991, to Tesco’s corporate return
rather than his individual return. Moreover, the circumstances
are sufficiently confusing and uncertain to constitute reasonable
cause for the error. Petitioner has met his burden of
establishing that the understatement for 1991 was due to
reasonable cause (an error by his accountant in the allocation of
income between his individual and corporate return during the
formation gap), and that he acted in good faith with respect to
such portion by reasonably relying on his accountant’s expertise.
There is no evidence in the record to suggest that
petitioner actually knew of the accounting error at the time he
filed his 1991 individual return. Nor is there any evidence to
suggest that petitioner took unfair advantage of the Government
or received any net financial benefit from the erroneous
allocation of the income. On the contrary, the evidence suggests
that this was an innocent error caused by a series of mistakes
inadvertently made by petitioner’s accountant. In these
circumstances, we conclude that no accuracy-related penalty
should be imposed in connection with the $32,755 of income
erroneously omitted from petitioner’s 1991 individual income tax
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