- 12 - C. Whether Petitioners Are Liable for the Accuracy-Related Penalty A taxpayer is not liable for the accuracy-related penalty under section 6662(a) and (b)(1) if there was reasonable cause for the underpayment and the taxpayer acted in good faith. Sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs. Reliance in good faith by the taxpayer on the advice of a qualified adviser may constitute reasonable cause. Sec. 1.6664-4(b)(1), Income Tax Regs. Petitioners contend that they are not liable for the accuracy-related penalty under section 6662(a) and (b)(1) because they reasonably relied in good faith on Dunning, their C.P.A. and return preparer.5 Sec. 6664(c)(1). We disagree. Petitioners could not reasonably have believed that they could use the trusts to eliminate all of their self-employment tax liabilities for 1997 and 1998 and all or almost all of their Federal income tax liabilities for those years. Tax benefits of this magnitude should have caused petitioners to question the validity of the trust scheme. See Collins v. Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988), affg. Dister v. Commissioner, T.C. Memo. 1987-217; Gale v. Commissioner, T.C. Memo. 2002-54. In such cases, taxpayers have a duty to reasonably inquire into the 5 Petitioners contend that respondent bears the burden of proof under sec. 7491(a). We need not decide which party bears the burden of proof because the outcome in this case does not depend on the burden of proof.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
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