- 17 -
does not, in and of itself, require holding for respondent on the
accuracy-related penalty. See Hitchins v. Commissioner, 103 T.C.
711, 719 (1994).
Respondent contends that petitioners were negligent on the
following grounds: (1) Petitioners were not entitled to claim
the foreign earned income exclusion under the signed closing
agreement; (2) in the alternative, petitioners were not entitled
to claim the section 912 exclusion because the Form 2555 made no
reference to that section;8 and (3) petitioners were not entitled
to exclude from gross income the value of lodging under section
119.
Petitioners do not dispute that they signed the closing
agreement and that they agreed not to claim an exclusion under
section 911. Petitioners contend that they did not claim an
exclusion under section 911, but that they claimed an exclusion
under section 912, which was not prohibited in the closing
agreement. Moreover, petitioners contend that they claimed
exclusions under sections 119 and 912 only after their accountant
researched these issues.
Having observed petitioners’ appearance and demeanor at
trial, we found them to be honest, sincere, and credible
witnesses.
8 Sec. 912 provides that civilian officers and employees of
the U.S. Government stationed outside the continental U.S. may
exclude from gross income the cost-of-living allowances received.
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