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most important factor. Sec. 1.6664-4(b)(1), Income Tax Regs.;
see also Hansen v. Commissioner, supra at 1028-1029.
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 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 Sections 6662(h) and 6664
In Durham Farms #1, J.V. v. Commissioner, T.C. Memo.
2000-159, the Court held that TBS 90-1 did not receive the
benefits and burdens of ownership of the cattle in dispute there
and was not entitled to partnership deductions and losses claimed
with respect thereto. The Court’s decision stated that the
partnership’s “Depreciation Expense”, which was reported as
$2,174,204, was zero. The disallowance of that item resulted in
a computational adjustment (and tax understatement) for 1992, and
a corresponding assessment against petitioners, of $28,346.
Because petitioners’ adjusted basis for the depreciation expense
deduction also was zero, the underpayment for 1992 resulting from
the disallowance of petitioners’ share of the partnership loss
from TBS 90-1, most of which was attributable to a disallowed
depreciation expense, is attributable to an overstatement of
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Last modified: November 10, 2007