-23-
6664(c)(1); sec. 1.6664-4(b), Income Tax Regs. Petitioners have
the burden of proving that the accuracy-related penalty does not
apply. See Higbee v. Commissioner, supra at 446. The
determination of whether the taxpayers acted with reasonable
cause and in good faith depends on the pertinent facts and
circumstances, including the taxpayer’s efforts to assess his or
her proper tax liability, the knowledge and experience of the
taxpayers, and the reliance on the advice of a professional.
Sec. 1.6664-4(b)(1), Income Tax Regs.
Petitioners argue that they acted with reasonable cause
regarding the lemon farming activity. Petitioners deducted the
same expenses on previous returns, and the Commissioner did not
disallow those deductions in an earlier audit. Sheehy v.
Commissioner, T.C. Memo. 1996-334. A similar deduction allowed
on audit for an earlier year may be one factor to be considered
in determining whether the accuracy-related penalty applies. See
Stewart v. Commissioner, T.C. Memo. 2002-199; Sheehy v.
Commissioner, supra.
We note that the inquiry into whether an activity was
engaged in for profit is a facts and circumstances test. We find
it was reasonable for petitioners to believe the deductions were
permitted when a previous audit did not require changes. See
Sheehy v. Commissioner, supra. Based on all of the facts and
circumstances of this case, we find that petitioners had
reasonable cause for and acted in good faith with respect to the
treatment of their lemon farming activity. We accordingly find
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