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Under certain circumstances, a taxpayer may avoid the
accuracy-related penalty for negligence where the taxpayer
reasonably relied on the advice of a competent professional.
Sec. 1.6664-4(b)(1), Income Tax Regs.; sec. 6664(c); Freytag v.
Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th
Cir. 1990), affd. 501 U.S. 868 (1991). However, reliance on a
professional adviser, standing alone, is not an absolute defense
to negligence; it is only one factor to be considered. In order
for reliance on a professional adviser to relieve a taxpayer from
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. Freytag v. Commissioner, supra at 888.
Petitioners made no effort to ascertain the professional
background and qualifications of their return preparer, Mr.
Beltran. Petitioners knew that Mr. Beltran disregarded the
documentary information they had provided to him to substantiate
their claimed deductions and, moreover, knew that they could
claim tax deductions only for amounts actually expended. The
Court is satisfied that petitioners consciously failed to examine
the returns prepared by Mr. Beltran because they knew that some
of the deductions claimed on the returns were false, and they
hoped their returns would escape the audit process. With the
obvious reservations petitioners had or should have had, they,
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Last modified: May 25, 2011