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Petitioner contends that there was reasonable cause to rely
on the settlement’s explicit characterization of the disputed
settlement amount, particularly since a timely Form 1099 was not
provided to him. However, in qualifying the disputed settlement
amount as “non-taxable to the fullest extent permitted by law,”
the settlement contemplates that such allocation was not to be
conceived of as a definitive pronouncement for tax purposes.
(Emphasis added.) Additionally, petitioner presented no evidence
that he consulted with a professional tax adviser, or took any
other independent action, to confirm the treatment of the
disputed settlement amount under Federal tax law. In light of
our findings above concerning the nonadversarial nature of the
settlement negotiations and the dubious origin of petitioner’s
ailments, the mere fact that petitioner did not receive the Form
1099 does not establish the applicability of the reasonable cause
and good faith exception to the section 6662 penalty.
To the extent the parties’ Rule 155 computation reflecting
our findings above results in a recalculated tax satisfying
section 6662(d)(1), we hold petitioners liable for the
substantial understatement penalty.
4. Interest
Petitioners challenge respondent’s assessment of interest by
invoking section 6404(g), which mandates (in the case of a timely
filed return) the suspension of interest and penalties if
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