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On their tax returns for the 3 years at issue, petitioners
claimed itemized deductions and rental real estate expenses
substantially in excess of amounts they agreed to in the
settlement noted earlier. In addition, petitioners failed to
report dividend income on their 1999 return. With respect to the
expenses that were disallowed, the deductions claimed on
petitioners' returns were calculated by their return preparer
through the use of a formula in which the deductions claimed were
based on their income. Petitioners knew that the deductions
claimed were not based on their books and records and also knew
that the amounts claimed could not be substantiated. Petitioners
made no effort to determine whether the use of such a formula was
proper, nor did they make any effort to ascertain the
professional background and qualifications of their return
preparer, Mr. Beltran. As noted above, in order to be relieved
of the negligence penalty, the taxpayer must establish that the
professional adviser on whom he or she relied had the expertise
and knowledge of the relevant facts to provide informed advice on
the subject matter. While the Court is satisfied that
petitioners provided the necessary and relevant facts to their
return preparer, petitioners did not establish that their
preparer/adviser had the expertise to provide informed advice on
the matter of their tax deductions. Petitioners knew, or should
have known, that they could only claim deductions that could be
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