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years in issue, they are not entitled to the full deduction in
1991. See sec. 165(f).
IV. Expense Deduction
Petitioners contend, in the alternative, that they are
entitled to a section 162(a) deduction relating to an ordinary
and necessary business expense. Section 162(a) provides that a
taxpayer engaged in a trade or business may deduct all ordinary
and necessary expenses. Petitioners have failed to establish
that JTFJ’s corporate expenses were the ordinary and necessary
expenses of their trade or business. Petitioners, therefore, are
not entitled to deduct the advances and guaranty payments as
ordinary and necessary business expenses pursuant to section
162(a).
V. Accuracy-Related Penalty
Respondent determined that petitioners were negligent in
determining their 1991, 1992, and 1994 liabilities and are liable
for a section 6662 penalty. The penalty applies to the portion
of petitioners’ underpayment that is attributable to negligence
or disregard of rules or regulations. See sec. 6662(b)(1).
Petitioners, relying on the advice of an attorney and an
accountant, made a reasonable attempt to accurately report their
bad debt deduction. See sec. 6664(c). As a result, petitioners
are not liable for the accuracy-related penalty.
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