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Petitioners contend that they were not negligent in using
the private annuity transaction recommended and implemented by
Mr. Pennoni. Petitioners also argue that, even if we conclude
they were negligent, petitioners relied upon the advice of an
experienced tax professional who had full knowledge of the
relevant facts in entering into the private annuity transaction
and that they qualify for relief from the penalty under section
6664(c).
Section 6664(c)(1) provides that “No penalty shall be
imposed under this part with respect to any portion of an
underpayment if it is shown that there was a reasonable cause for
such portion and that the taxpayer acted in good faith with
respect to such portion.” The record consisted solely of a
substantial number of stipulated exhibits and the testimony of
three witnesses called by petitioners. The three witnesses
testified, among other things, that the private annuity
transactions were planned and implemented by Mr. Pennoni, who
assured petitioners that the transactions were legitimate and
were entitled to respect under Federal income tax law. The
exhibits reflect the planning and implementation of the private
annuity transactions and, on their faces, do not support a
conclusion that petitioners’ decision to enter into the
transactions was per se negligent.
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