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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
respondent.
Reviewed and adopted as the report of the Small Tax Case
Division.
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Last modified: May 25, 2011