- 17 -
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.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011