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(Commissioner’s position regarding “tax home” issue was
substantially justified, but his assertion of accuracy-related
penalty was not). Suffice it to say that a close case is often
indicative of reasonableness and good faith on both sides of the
dispute. We conclude that respondent’s assertion that
petitioners’ position on the discharge of indebtedness issue was
not only incorrect, but unreasonable as well, was itself
unreasonable.11
III. Amount of Recoverable Costs
A. Eligible Costs
Petitioners seek costs in the amount of $10,978.74.
However, petitioners’ submission of costs includes 18.25 hours of
services performed by C.P.A. Nancy J. Critz prior to January 19,
1999. The cost of those services is not recoverable under
11 Sec. 1.6662-3(b)(1)(i), Income Tax Regs., provides that
negligence is “strongly indicated” where a taxpayer omits income
reported on an information return (such as a Form 1099). While,
ordinarily, that might be the case (which in turn would tend to
support a finding that the Commissioner acted reasonably in
asserting the negligence penalty under such circumstances), such
principle presupposes that, unlike the instant case, the
correctness of the information return in question is not in
dispute. Cf. Portillo v. Commissioner, 988 F.2d 27 (5th Cir.
1993)(Commissioner’s reliance on uncorroborated Form 1099 not
reasonable under the circumstances; no separate discussion of
negligence penalty in this context), revg. T.C. Memo. 1992-99;
Eifert v. Commissioner, T.C. Memo. 1997-214 (Commissioner’s
reliance on FDIC’s erroneous Form 1099-G, reporting discharge of
indebtedness income, not reasonable under the circumstances; no
negligence penalty asserted).
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