-10-
years (collectively, subject returns). Cervantes first advised
petitioner in 1999 that it had to file the four returns, and
Cervantes prepared those returns shortly after giving this
advice.6 Petitioner had no communications with Cervantes as of
the time of this advice going back to the earlier time at which
petitioner’s initial return was filed. When the four returns
were filed, respondent had no knowledge that the returns were
overdue.
The four returns filed in 1999 each listed petitioner’s U.S.
employer identification number and reported that petitioner was
incorporated in Barbados, that petitioner was subject to income
tax under the laws of Barbados, and that petitioner was not
liable for a United States branch profits tax. Each return also
reported that petitioner’s business activity was real estate and
that its product or service was investment. Each return also
reported that petitioner had not engaged in a trade or business
in the United States, but that petitioner had realized a taxable
loss effectively connected with the conduct of a trade or
business in the United States. None of the returns included a
statement under section 1.871-10(d)(1)(ii), Income Tax Regs.,
reporting that petitioner was making an election under section
882(d)(1). Because respondent with petitioner’s acquiescence has
6 Cervantes also prepared petitioner’s Federal income tax
returns for several years following the subject years.
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