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form 1040 was filed and signed by the Carey’s for the
year 1995. Mr. Tim Riley from American Tax Service
(bookkeeping) was hired to do all bookkeeping for the
year 1995. American Tax Professionals was hired to
complete the 1040 tax returns based on the information
provided by Mr. Riley. The Carey’s relied on these
professionals to produce accurate tax information.
Under [secs.] 6662 and 6664 and applicable regulations,
a taxpayers good faith reliance on the advice of
(including opinions) of a professional tax advisor will
generally be taken in account for purposes of
determining whether the taxpayer will be subject to
accuracy related penalty.
The Careys bear the burden of proof. To sustain a defense
to the accuracy-related penalty based on reliance on professional
advice, the Careys must establish, among other things, what
advice they relied on and that the advice was based on adequate
information provided by them. See, e.g., Daugherty v.
Commissioner, 78 T.C. 623, 641 (1982); Pessin v. Commissioner,
59 T.C. 473, 489 (1972); Ciaravella v. Commissioner, T.C. Memo.
1998-31; Stephens v. Commissioner, T.C. Memo. 1997-204. The
Careys offered no evidence regarding what information they
provided to, or what advice they received from, Tim Riley,
American Tax Service, American Tax Professionals, or Linda
Billingsley, who signed the return as a paid preparer. The
Careys failed to carry their burden of proving that they were not
negligent or that they acted in good faith or had reasonable
cause for the positions they took on their return. The
understatement of income was (and remains) substantial, and we
sustain respondent’s determination of the accuracy-related
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