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the disputed item. United States v. Boyle, 469 U.S. 241 (1985).
A good faith, reasonable reliance on the advice of an
independent, competent professional as to the tax treatment of an
item may meet this requirement. Id.; sec. 1.6664-4(b), Income
Tax Regs.
Whether a taxpayer relies on professional advice and whether
such reliance is reasonable hinge on the facts and circumstances
of the case and the law that applies to those facts and
circumstances. Sec. 1.6664-4(c)(i), Income Tax Regs. For a
taxpayer to rely reasonably upon professional advice so as
possibly to negate a section 6662(a) accuracy-related penalty,
the taxpayer must prove by a preponderance of the evidence that
the taxpayer meets each requirement of the following three-prong
test: (1) The adviser was a competent professional who had
sufficient expertise to justify reliance, (2) the taxpayer
provided necessary and accurate information to the adviser, and
(3) the taxpayer actually relied in good faith on the adviser’s
judgment. Ellwest Stereo Theatres, Inc. v. Commissioner, T.C.
Memo. 1995-610; see also Rule 142(a)(1). The record persuades us
that petitioner has met each of these requirements. Because
petitioner (through its officers) actually relied in good faith
on its accountants’ advice as to the matters at hand, and the
reliance was reasonable, we decline to sustain respondent’s
determination as to the accuracy-related penalties.
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