Danvis S. and Sheryl S. Smith - Page 12

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          reasonable cause for the taxpayer’s position and that the                   
          taxpayer acted in good faith with respect to that portion.  The             
          determination of whether a taxpayer acted with reasonable cause             
          and in good faith is made on a case-by-case basis, taking into              
          account all the pertinent facts and circumstances.  Sec.                    
          1.6664-4(b)(1), Income Tax Regs.  The most important factor is              
          the extent of the taxpayer’s effort to assess his proper tax                
          liability for the year.  Id.                                                
               Petitioners claimed deductions for payments which were never           
          made, and they failed to properly substantiate various other                
          deductions claimed on their returns.  Furthermore, petitioners              
          used Alpha Ministries and Smith Corporation--entities which were            
          essentially alter egos of petitioner--to eliminate nearly all               
          Federal tax liability on their wage and salary income in each of            
          the years in issue.  The use of these entities in this manner is            
          not evidence of a reasonable attempt to comply with Federal tax             
          law and does not reflect reasonable cause and good faith for                
          petitioners’ actions.                                                       
               We find that petitioners were negligent and hold that they             
          are liable for the accuracy-related penalties determined by                 
               Reviewed and adopted as the report of the Small Tax Case               

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