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estimate of the replacement cost of the computer simulator was
reasonable. On the record before us, we reject petitioners’
argument. Petitioners were in a unique position to know SDC’s
cost of, and thus its basis in, the computer simulator. That is
because they, acting on behalf of TGC, designed and constructed
that simulator and carried out the other work that TGC performed
for SDC under the 1992 contract. Assuming arguendo that peti-
tioners were not negligent in claiming that they, as the stock-
holders of TGC, were entitled to the respective depreciation
deductions in petitioners’ 1997 return and petitioners’ 1998
return, on the record before us, we find, for the reasons set
forth above in our discussion of the basis under section 167(c)
on which a taxpayer may claim a depreciation deduction, that
petitioners did not have reasonable cause for, or act in good
faith in, using the estimated replacement cost of the computer
simulator in calculating such depreciation deductions.
Petitioners advance no argument that they had reasonable
cause for, or acted in good faith in, claiming a deduction for
Mr. Horwath’s 1998 travel expenses in petitioners’ 1998 return.
In any event, petitioners knew that Mr. Horwath was entitled to a
reimbursement by TGC for Mr. Horwath’s 1998 travel expenses and
that Mr. Horwath chose not to be reimbursed by TGC for such
expenses. On the record before us, we find that petitioners have
failed to establish that they had reasonable cause for, or acted
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