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an understatement if it is shown that there was a reasonable
cause for such portion and the taxpayer acted in good faith with
respect to such portion.
We agree that petitioners corresponded with representatives
of the Internal Revenue Service prior to filing their 1999 return
(Mr. Kopty’s letter dated May 27, 2000, which was sent on June 6,
2000, and his transmittal letter dated October 4, 2000). We also
agree that Mr. Kopty engaged in correspondence with Norwest and
J.D. Edwards & Co. during 2000 regarding the distribution from
the ESOP. That correspondence shows that Mr. Kopty was unhappy
about the fact that his shares of J.D. Edwards & Co. stock were
not sent until July 30, 1998, and were unregistered shares that
could not be immediately sold. According to one of petitioner’s
letters to J.D. Edwards & Co., the “ESOP shares were supposed to
have been received in April ‘clear for sales’ from J.D. Edwards.”
During the delay, the value of the shares decreased from
$467,766.10, the value on July 15, 1998, to $336,022.08, the
value of the shares on November 16, 1998, when they were sold.
Petitioner was concerned by the fact that the Form 1099-R which
he received from the ESOP was based upon the value of the shares
on July 15, 1998, and showed the taxable amount of such
distribution to be $42,695.14. When Mr. Kopty stated in his
letter to the Internal Revenue Service dated May 27, 2000: “also
we would like to request from you any suggestions that will help
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