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failure to do what a reasonable and ordinarily prudent person
would do in a similar situation”. Niedringhaus v. Commissioner,
99 T.C. 202, 221 (1992). More particularly, petitioner and her
husband claimed that they were not negligent because they relied
upon their accountant’s advice and tax return preparation skills.
The issue we consider in the current case is whether
petitioner did not know or have reason to know that there was an
understatement on her joint tax return. This inquiry is distinct
from the negligence inquiry in Pierce I and involves a different
and more complex standard. In Pierce I we held that petitioner’s
and her husband’s reliance on their accountant was reasonable and
that, therefore, the negligence penalty did not apply to her or
her husband.4 Petitioner contends that our holding also
implicitly includes a finding that petitioner had no reason to
know. In Pierce I, however, we did not find as a fact or hold
that petitioner “did not have a reason to know of the
understatement.” The issues in Pierce I and the current case are
not identical and so do not provide a basis for issue preclusion
and cannot be used to assert collateral estoppel as an
affirmative defense in this case.
4 Although the Pierces’ reliance on their accountant was
reasonable, it proved to be unwarranted as evidenced by the
Pierces’ receipt of $900,000 from their accountant in settlement
of the Pierces’ contract and negligence claims in connection with
the professional advice and preparation of their income tax
returns.
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