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accountant (and return preparer) indicated to him that he had
some concern about the returns, that "your taxes are not what
they should be", and there was something that did not "measure
up". Petitioner discussed this concern with Allan, who assured
him that the information on the returns was accurate. Petitioner
trusted Allan at the time and made no further inquiries into the
matter. Moreover, petitioner's accountant never suggested any
specific areas on the returns that were suspect. After the audit
of his returns and the reasons for the shortcomings came to
light, petitioner dismissed his brother from the business and
conceded to the adjustments, except for the issues discussed,
portions of which were conceded by respondent and, in one
instance, allowed by the Court.
On this record, the Court holds that petitioner is not
liable for the accuracy-related penalties under section 6662(a)
for the 3 years in question. The circumstances described satisfy
the Court that there was an honest ignorance of the facts by
petitioner regarding Allan's actions in failing to report all the
gross receipts of the business. However, the Court sustains
petitioner's liability for the accuracy-related penalties for the
3 years in question for that portion of the deficiencies
attributable to the unreported interest income.
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Last modified: May 25, 2011