Larry G. and Mary L. Bangs - Page 23

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          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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