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bonds made taxable. The interest on the bonds, therefore,
“accrued” or accumulated and, when the bonds were redeemed by
petitioner, that accumulated or “accrued” interest was includable
in his income.
Respondent agrees that, following his mother’s death,
petitioner, as her personal representative, could have filed a
final return on her behalf for the year 1999, in which petitioner
could have elected, on behalf of her estate, under section 454,
to have the interest included as income for that year on his
deceased mother’s final 1999 return. Petitioner did not do that
and instead attempted to file a return on behalf of his mother’s
estate for the year 2001, which was rejected by the IRS. Since
petitioner did not have knowledge of his mother’s ownership of
the bonds until 2001, respondent agrees that petitioner could
have, under section 301.9100-1, Proced. & Admin. Regs., applied
for an extension to file a return for her estate for 1999 to make
the election under section 454(a); however, no such application
was ever made. Moreover, as respondent points out, requests for
such extensions are conditioned upon the taxpayer’s providing
evidence satisfying the Commissioner that the taxpayer acted
reasonably and in good faith, and the granting of relief does not
prejudice the interests of the Government. A taxpayer is deemed
to have acted reasonably and in good faith if he failed to make
the election because, after exercising reasonable diligence,
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