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Petitioner’s treatment of the transactions involving the
Happy Valley property on her 1997 and 1998 returns was not
supported by substantial authority. Furthermore, petitioner
neither disclosed the relevant facts in those returns nor had a
reasonable basis for the position taken on those returns.
Consequently, the understatements of income tax on petitioner’s
1997 and 1998 returns cannot be reduced under section
6662(d)(2)(B).
Whether the section 6662(a) penalty is applied because of an
underpayment attributable to negligence or disregard of the rules
or regulations or to a substantial understatement of income tax,
the penalty will not be imposed with respect to any portion of
the underpayment as to which the taxpayer acted with reasonable
cause and in good faith. Sec. 6664(c)(1); Higbee v.
Commissioner, supra at 448-449. The decision as to whether a
taxpayer acted with reasonable cause and in good faith is made by
taking into account all of the pertinent facts and circumstances.
Sec. 1.6664-4(b)(1), Income Tax Regs.
Generally, the most important factor in deciding whether a
taxpayer acted with reasonable cause and in good faith is the
extent of the taxpayer’s effort to assess the taxpayer’s proper
tax liability. Id. Petitioner primarily argues that she acted
with reasonable cause and in good faith because she filed her
1997 and 1998 returns in accordance with an agreement that she
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