-13-
with reasonable cause and in good faith. Sec. 6664(c)(1).
Whether a taxpayer acted as such is a factual determination, sec.
1.6664-4(b)(1), Income Tax Regs., for which the taxpayer’s effort
to assess the proper tax liability is an important consideration.
Here, respondent has met his burden of production in that
the understatement on petitioners’ return is “substantial” within
the meaning of section 6662(d)(1). Petitioners argue that they
acted reasonably and in good faith towards the subject matter of
the deficiency. We agree. On the basis of the record before us,
we find that petitioners were cognizant as to the issue of the
taxability of the $132,000 and that they reasonably relied upon
the advice and representations of professionals to conclude that
the payment was not taxable. United States v. Boyle, 469 U.S.
241, 250 (1985) (reasonable reliance on the advice of a competent
adviser may be a defense to the accuracy-related penalty).
Although respondent notes correctly that petitioners did not heed
Boise’s advice to attach the 2000 Form 1099-MISC to their 2000
return, we know of no requirement (nor has respondent identified
any such requirement) that petitioners have attached that form to
their 2000 return.3 We also decline to find as a fact
respondent’s assertion on brief that petitioners did not heed
Boise’s advice to include the $132,000 in their income. The
3 We note our finding that Nageley did not withhold any
Federal income tax on the $132,000 payment that it made to Kidd.
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