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A substantial understatement of tax exists with respect to
petitioner’s 1999 income tax. However, petitioner relied on the
advice of both her attorney and her tax return preparer in coming
to the conclusion that the settlement proceeds were excludable
from her gross income. Based on the record before us, we find
that this reliance was reasonable and in good faith. We
therefore hold that petitioner is not liable for the section
6662(a) accuracy-related penalty.
Respondent concedes that petitioner is entitled to a
miscellaneous itemized deduction for the legal fees of $23,453
which petitioner paid in connection with the lawsuit.
Miscellaneous itemized deductions are allowed to the extent they
exceed 2 percent of the taxpayer’s adjusted gross income. Sec.
67(a). A Rule 155 computation is required in this case to
calculate the proper amount of the deficiency taking into account
petitioner’s itemized deductions.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.
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Last modified: May 25, 2011