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of professional reliance and information disclosure. Petitioners
assert that they relied upon Mr. Aulisio and, as previously
indicated, characterize their situation as one of “full
disclosure”. We, however, disagree with petitioners’ assessment
that their actions and reporting were sufficient to avoid the
penalty.
First, we reiterate that petitioners’ method of reporting
fell far short of “disclosing” relevant facts regarding the
proprietorship’s alleged inactivity to respondent. The return
also did not reveal facts underlying the loss deduction.
Petitioners failed to maintain adequate records to support the
amounts claimed on their return. Moreover, there exists no
substantial authority for reducing income either by costs or by a
loss that cannot be substantiated. Given these facts, we
conclude that unless petitioners are entitled to relief under the
section 6664(c) exception, petitioners are liable for the
accuracy-related penalty on account of negligence and substantial
understatement.
Turning then to the question of reasonable cause, we further
conclude that petitioners have failed to establish exculpatory
reliance on Mr. Aulisio. Most importantly, there has been no
showing that Mr. Aulisio was provided with accurate information
such that any errors are attributable to him and not to
petitioners. Mr. Aulisio admits that the figures reported for
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