William F. Middleton - Page 17




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         not automatically a defense to negligence, but it is one factor              
         to be considered.  See Freytag v. Commissioner, 904 F.2d 1011                
         (5th Cir. 1990), affd. 501 U.S. 868 (1991).  It must be                      
         established that the reliance was reasonable, in good faith, and             
         based upon full disclosure.  Ewing v. Commissioner, 91 T.C. 396,             
         423-424 (1988), affd. without published opinion 940 F.2d 1534                
         (9th Cir. 1991); Metra Chem                                                  
         Corp. v. Commissioner, 88 T.C. 654, 662 (1987); Pritchett v.                 
         Commissioner, 63 T.C. 149, 175-176 (1974).                                   
               In his defense, petitioner claims that he did not have a               
         great deal of time to file the 1991 return by April 1994.  This              
         was due to respondent’s examination that followed petitioner’s               
         plea of guilty to Medicaid fraud.  Petitioner hired an accountant            
         who reconstructed petitioner’s records because adequate records              
         had not been maintained for his taxi-leasing business and                    
         Medicaid activities.  Petitioner’s accountant reconstructed                  
         petitioner’s tax reporting position from the records available               
         and from information provided by petitioner.                                 
               With respect to the income side of petitioner’s 1991                   
         reporting, respondent made no adjustments with the exception of              
         $1,313 of interest income.  With respect to petitioner’s                     
         deductions, however, respondent disallowed a claimed  $1,490 loss            
         from the sale or involuntary conversion of a taxi.  Respondent,              
         in the notice of deficiency, allowed $112,023 of the $254,787                
         petitioner claimed as business deductions.  During pretrial                  




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