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Petitioner does claim to have relied on the advice of Mr.
Rabinowitz, his accountant, who testified at trial. We note,
however, that petitioner knew of Mr. Rabinowitz’s trial,
conviction in 1994, and incarceration for conspiracy to defraud
and impede the IRS and for filing a false tax return. We do not
find that under these circumstances any reliance upon Mr.
Rabinowitz for tax advice was justified. Nor is there proof that
Mr. Rabinowitz was supplied with all information relevant to the
items on petitioner’s return. Thus, we do not find that
petitioner acted with reasonable cause and in good faith.
After considering all of the facts and circumstances, we
find that petitioner has failed to establish that he had
reasonable cause and acted in good faith with respect to the
understatement. Accordingly, we find that the accuracy-related
penalty applies to petitioner’s underpayment in 1998.
We therefore find that petitioner may not deduct the
$158,381 as a bad debt in 1998 and that petitioner is liable for
the accuracy-related penalty. Accordingly, we shall sustain
respondent’s determinations in the deficiency notice.
To reflect the foregoing,
Decision will be entered
for respondent.
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