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in good faith is a factual question. Sec. 1.6664-4(b)(1), Income
Tax Regs. Generally, the most important factor in determining
whether a taxpayer acted with reasonable cause and in good faith
is the extent to which the taxpayer exercised ordinary business
care and prudence in attempting to assess his or her proper tax
liability. Id. Reasonable cause may, in some cases, be
established by reliance on the advice of a professional tax
adviser. Id. Sec. 1.6664-4(b), Income Tax Regs. In order for
the taxpayer to establish that he reasonably relied upon advice,
he must prove by a preponderance of the evidence that (1) the
adviser was a competent professional who had sufficient expertise
to justify reliance; (2) the taxpayer provided necessary and
accurate information to the adviser; and (3) the taxpayer
actually relied in good faith on the adviser’s judgment.
Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99
(2000), affd. 299 F.3d 221 (3d Cir. 2002).
Although honest misunderstanding of fact or law could be
reasonable, petitioners are required to take reasonable steps to
determine the law and to comply with it. See Niedringhaus v.
Commissioner, 99 T.C. 202 (1992). In the end, the duty of filing
accurate returns lies with petitioners, who must bear the
ultimate responsibility for any negligent errors of their agent.
See Pritchett v. Commissioner, 63 T.C. 149, 174 (1974).
Petitioners generally contend that they had hired tax
professionals to advise them on their various activities,
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Last modified: March 27, 2008