Linda A. Fields - Page 17




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          We find that difficult to believe.  Furthermore, the Fieldses               
          undeniably incurred the expenditures in question; the issue was             
          simply whether the amounts were properly deductible as trade or             
          business expenses under section 162.  The Fieldses’ new return              
          preparer (whom the Fieldses’ attorney had engaged in connection             
          with respondent’s examination) determined that the expenditures             
          were deductible, and respondent eventually conceded a significant           
          portion of the deductions.  In light of the foregoing, we have              
          little difficulty concluding that respondent had no reasonable              
          basis for asserting the fraud penalty against petitioner with               
          respect to such amounts.                                                    
               E.  Conclusion                                                         
               We find that respondent’s assertion of the fraud penalty               
          with respect to the understatement of business income on the                
          initial 1991 return was substantially justified.  We find that              
          respondent’s assertion of the fraud penalty with respect to (1)             
          the understatement of business income and interest income on the            
          initial 1992 return, and (2) the overstatement of business                  
          deductions on the amended 1991 return, the amended 1992 return,             
          and the 1993 return was not substantially justified.  In that               
          regard, we agree in large part with petitioner that respondent              
          placed too much emphasis on the criminal activity of petitioner’s           
          ex-husband in pursuing his fraud case against petitioner.                   








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