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Reasonable cause and good faith under section 6664(c) may be
established where there is an honest misunderstanding of fact or
law that is reasonable in the light of all facts and
circumstances, including the experience, knowledge, and education
of the taxpayer. Sec. 1.6664-4(b)(1), Income Tax Regs.
Reasonable cause and good faith are not necessarily established
by reliance on facts that, unknown to the taxpayer, are
incorrect. Id.
3. Applicability of the Accuracy-Related Penalties
a. Gross Valuation Misstatement
In Durham Farms #1, J.V. v. Commissioner, T.C. Memo.
2000-159, the Court held that TBS 89-1 did not receive the
benefits and burdens of ownership of the cattle in dispute there
and was not entitled to the partnership deductions and losses
claimed with respect thereto. The Court’s decision stated that
the partnership’s “Depreciation Expense” and “Depreciation after
1986”, each of which was reported as $1,056,720, were both zero.
The disallowance of those items resulted in a computational
adjustment (and tax understatement) for 1989 of $7,574. Because
petitioner’s adjusted basis for the depreciation expense
deduction also was zero, the underpayment for 1989 resulting from
the disallowance of petitioner’s partnership loss from TBS 89-1,
all of which was attributable to a disallowed depreciation
expense, is attributable to an overstatement of bases of more
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Last modified: November 10, 2007