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The penalty under section 6662(a) does not apply to any
portion of an understatement of tax if it is shown that there was
reasonable cause for the taxpayer’s position and that the
taxpayer acted in good faith with respect to that portion. Sec.
6664(c)(1). 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/her proper tax liability for the year. Id. The good faith
reliance on the advice of an independent, competent professional
as to the tax treatment of an item may meet this requirement.
Sec. 1.6664-4(b), Income Tax Regs.
Despite the fact that petitioners have the burden of proof,
see supra note 3, petitioners have made no showing that they made
an attempt to comply with the tax rules and regulations with
regard to those deductions taken by Waterfall Farms for the years
at issue which have been disallowed. Hence, with respect to
those deductions, petitioners have failed to show that Waterfall
Farms was not negligent. Nor have petitioners showed that they
acted in good faith with respect to, or that there was reasonable
cause for, the position they took.
Further, petitioners do not claim that they relied on Mr.
Bleeker or any other professional as to the tax treatment of the
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