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part or all of the accuracy-related penalty is inapplicable
because it is attributable to an understatement for which the
taxpayer acted 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 a
very important consideration.
Here, we conclude that respondent has met his burden of
production. Petitioner’s deductions of the expenses related to
the Centurion were an unreasonable application of the internal
revenue laws, e.g., the disputed deductions were contrary to the
plain text of section 274(a)(1)(B) and to guidance as that text’s
interpretation that was published well before the first year in
issue. See Catalano v. Commissioner, 240 F.3d at 845.
Petitioner also failed to keep adequate books and records in
support of those deductions, e.g., petitioner failed to maintain
adequate records documenting the individuals who were on board
the Centurion during the subject years. Petitioner, through
Roach, also showed a lack of due care in the preparation of the
subject returns, e.g., Roach did not give Jung all of the
information required to report the disputed deductions correctly
and gave to Jung misinformation as to those deductions.
Petitioner argues that it may escape the accuracy-related
penalties in that, it claims, it relied reasonably upon Jung to
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