-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 findPage: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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