- 6 -
The disallowed deductions and costs of goods sold in 1996
and 1997 with respect to Mr. Haggart’s Schedules C business were
claimed by petitioners without any documentation or explanation.
In short, these items appear to have been totally fictitious.
Accordingly, petitioners’ underpayments were, at best,
attributable to negligence.
Petitioners attempt to deflect the accuracy-related
penalties on the ground that they relied on the advice of their
accountant. Generally, a taxpayer may avoid the imposition of
the accuracy-related penalty if “there was a reasonable cause
* * * and that the taxpayer acted in good faith”. Sec. 6664(c).
Whether the taxpayer acted with reasonable cause and in good
faith is determined by the relevant facts and circumstances and,
most importantly, the extent to which the taxpayer attempted to
assess the proper tax liability. See Neely v. Commissioner, 85
T.C. 934 (1985); Stubblefield v. Commissioner, T.C. Memo. 1996-
537; sec. 1.6664-4(b)(1), Income Tax Regs.
Reliance on the advice of a competent adviser can be a
defense to the accuracy-related penalty. See United States v.
Boyle, 469 U.S. 241, 250 (1985). But, reliance on professional
advice is not automatically a defense to negligence. Freytag v.
Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th
Cir. 1990), affd. 501 U.S. 868 (1991); see also sec. 1.6664-
4(c)(1), Income Tax Regs. The taxpayer must establish, inter
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011