TAX COURT OPINION

Case: Charles L. & Deborah J. Beasley
Docket Number: 15470-07S
Judge: Panuthos
Opinion Type: summary
Filed: 06/10/2009
Pages: 22

T .C . Summary Opinion UNITED STATES TAX CHARLES L . AND DEBORAH J . BEASL E COMMISSIONER OF INTERNAL REV E Docket No . 15470-07S . PANUTHOS, Chief Special Trial Judge : pursuant to the provisions of section 74 Revenue Code in effect when the petitio n 1 Unless otherwise indicated, all se ti on references are,t .o the Internal Revenue Code in effect for t e years in issue, ands all Rule references are to the Tax Court ules of Practice and'.'" Procedure I s w 4 any other court, and this . opinion shall not be treated as precedent for any other case . Respondent determined Federal income tax deficiencies an d accuracy- related penalties as follows : Year Deficiency 2003 2004 2005 $17,589 9,608 5,570 Penalties Sec . 6662(a ) $3,517 .8 0 1,921 .6 0 1,114 .0 0 The issues for decision are : (1) Whether petitioners ' $ 11 charter fishing activity was not engaged in for profit ; and (2) j„whether petitioners are liable for the accuracy-relate d ik ,penalties . Backgroun d Some of the facts have been stipulated, and we incorporat e the stipulation and accompanying exhibits by this reference . Petitioners were married and living in Maryland during the year s at issue and at the time they filed the petition . During the years at issue Charles Beasley (petitioner) wa s ,employed full time as an estimator and project manager for a heating', ventilating, and air conditioning installer . Mrs . Beasley,was employed full time as a Washington Metropolitan Are a .'Transit .Authority police officer . Petitioner completed hig h school,fas well as 5 years of trade school . Mrs . Beasley als o completed high school . rman", having spent muc h ing . Petitioner fir t s obtained his U .S . Coast Guard master lic nse in 1995 and had il t renewed periodically . Petitioner obtain commercial fishing license in 1996 . Som petitioners contemplated starting a char er fishing business ' do supplement their income . Before 2003 pe itioners did not have l any experience owning or operating a sma fishing business . During the years at i maintained several related licenses, inc master license, a Maryland charter boat y fishing license, and a Maryland guide license . Between 2001 and early 2003 petitioners searched extensivel y for a used boat . suitable for charter fishling operations in and ; surveyed charter boat captains regarding oat .selection . On January 30, 2003, petitioner wrot a business plan whic h indicated that he did not expect to make profit initially but hoped to reach profitability within 3 yea s . He predicted the,, fuel cost of each trip to be $50 . Petiti ner inquired about th e I fees set by other charter captains and se~ his charter fee s slightly below the prices reported to him seek any other advice while preparing his business plan . - 4 - Petitioners ordered a custom boat on February 3, 2003, at a ~1~contract price of $127,055 . This price was later reduced't o '1 '~~$122,435 to offset the cost of radar and depth-finding equipment petitioners purchased and installed themselves . The contract anticipated delivery on September 1, 2003, but petitioners di d li;not .receive the boat until November 3, 2003 . After a I~jmodification to the propeller, petitioners deemed the boa t '11 suitable for charter fishing operations on November 15, . 2003 . ill The fishing season ended on November 30, 2003 . As a result of ,II, the late delivery, petitioners canceled the charters they ha d il~ 1 booked for October and November . Petitioners did not receive any III income from the charter fishing activity in 2003 . In 2004 petitioners made 21 paid fishing trips and at leas t 6 unpaid trips . Petitioners' gross receipts from their charte r fishing activity in 2004 . was $8,630 . Petitioners did not pay for any advertising for their charter fishing activity in 2004 . In 2005 petitioners made 20 paid fishing trips and 1 or more unpaid trips . In an attempt to increase profitability , petitioners . took their boat to Virginia Beach, Virginia, in late 2005 to operate winter charters . Petitioners opened a bank account with SunTrust bank in 2003 . The name on the account was "Charles L . Beasley, AKA Deborah J Charters ." Petitioners deposited some of . the receipt s from their charter fishing activity into their personal account __5 - and deposited some of their wages, as ~ell as other moneys,'nt o the SunTrust account . Petitioners booked fewer charters each year than thei r business plan required for profitabili y . The number of charter fishing boats operating in petitioners' area increased from abou t 50 in 2003 to about 150 in 2008 . Petitioners did not keep any finan ial accounting records for their charter fishing activity, and they did not consult .lla n accountant for advice on the financial ~peration of tha t activity . Petitioners' evidence of inc me from charter fishing is limited to a handwritten list of dat s, amounts, and names . Although they retained fuel and supply invoices as well as cr{edit card receipts for income tax preparation purposes, they'did'ni'o t use their records to evaluate profitability . Petitioner believed that the charter boat might appreciate ri l in value'; however, he had no expectatior that the value of the boat would increase enough to offset th losses incurred durin g J the initial years of the charter fishin activity . Petitioners jl 11 believe that the charter fishing activity did not reduce-their capacity to perform the duties of their regular employment . A full-day fishing trip required each petitioner to work a 13-hour ~;I l day . Petitioners had their returns for each of the years'!'at issu e prepared by Tax Consultants of .North America . Petitioners' Form s 1040, U .S . Individual Income Tax Return, reported the following : Combined wages Itemized deductions Exemption amount Schedule C Charter Activit y Receipts Expense s Depreciation Supplies . Other expenses Interest on loan Profit (loss) NE Taxable Incom e . and Overpaymen t 'I! Taxable, income Tax 11 Withholding Overpayment (refund) 2003 2004 200 5 $128,290 27,318 9,150 $113,272 27,953 9,300 $93,16 2 27,76 7 9,60 0 -0- 8,630 9,49 0 73,800 12,308 12,031 2,946 (101,085) 19,680 13,879 12,567 9,800 (47,296) 11,80 8 (cid:127)11,51 4 10,13 8 9,79 9 (33,769 ) -0- -0- 14,706 (14,706) 33,179 4,261 11,518 (7,257) 28,47 5 3,54 1 8,95 7 (5,416 ) Respondent issued a notice of deficiency on April 18, 2007 . (Respondent disallowed petitioners' expense deductions claimed on, Schedule C, Profit or Loss From Business, in excess of thei r Schedule C income, and determined deficiencies for 2003, 2004, and 2005 . Additionally, respondent determined a section 666 2 accuracy-related penalty for each year . - 7 - Discussio n II In general, the Commissioner's determinations set forthlin a notice of deficiency are presumed corrEct, and the taxpayer !bear s the burden of proving that these determinations are in error1 I Rule 142(a) ; Welch v . Helvering , 290 U .JS . 111, 115 (1933) . Pursuant to section 7491(a), the burden of proof as to factua l matters shifts to the Commissioner under certain circumstances . Petitioners have alleged that section 7491(a) .applies but have not established compliance with its req irements . Petitioner s therefore bear the burden of proof . I . Whether Petitioners' Charter FishiacrActivity Was Not Engaged in for Profi t Respondent contends that petitions s' deductions from thei r .1 charter fishing activity are subject to the limitations. of 1 section 183 because the activity was no a ,trade or business .' I f a taxpayer is not engaged in a trade or business under section 162, he generally may deduct the expens s related to an activ{{ity l k 'Anot engaged in for profit" only to the extent of the gros s income derived from the activity for th~ taxable year . Sec . 183 (a) and (b) (2) . Section 162(a) provides that a tax ayer who is carrying n a "trade or business" may deduct ordinary and necessary expense s incurred in connection with the operatic n of the business . To be engaged in a trade or business within ti e meaning of section 162, "the taxpayer's primary purpose for eng ging in the activity must _ 8 b' e for income or profit ." Comm issioner v . Groetzinger , 480 U .S . i f 23, 35 (1987) . Profit means economic profit, independent of tax savings . Surloff v . Commissioner , 81 T .C . 210, 233 (1983) . A taxpayer seeking to deduct trade or business expenses under section 162 must establish that the underlying activity wa s ngaged in with an actual and honest profit objective . Dreice r v . Commissioner , 78 T .C . 642, 645 (1982), affd . without published opinion 702 F .2d .1205 (D .C . Cir . 1983) . The taxpayer must hav e entered into the activity, or continued the activity, with the actual, honest, and bona fide objective of making a profit . 1, Filios v . Commissioner , 224 F .3d 16, 23 (1st Cir . 2000),ti affg . T .C . Memo . 1999-92 ; Dreicer v . Commissioner , supra at 644-645 ; sec . 1 .183-2(a), Income Tax Regs . Objective indicia may"be considered to establish the taxpayer's true intent . Dreicer v . Commissioner , supra at 644-645 . I Because petitioners do not meet the statutory presumption of profit,2 we consider whether they engaged in the charter fishing activity for profit . We consider all the facts and circumstance s in determining whether a taxpayer entered into the activity fo r profit, placing greater weight upon objective facts than th e taxpayer's statements of intent . Dreicer v . Commissioner , supr a 2 Sec .,183(d) .generally provides that a taxpayer who engages in an activity that earns a profit in 3 of 5 consecutive years may be entitled to an electable presumption of a profit motive in the other 2 years . 9 - at 645 . . The following nine nonexclusi e factors are relevant i n determining whether the taxpayer enga g d in the activity for ( profit : (1) The manner in which the t xpayer carries on the ; activity ; (2) the expertise of the tax ayer or his advisers ;~j(3 ) the time and effort expended by the t o payer in carrying on i'I h e activity ; (4) the expectation that as s is used in the activity may appreciate .in value ; (5) the succe s of the taxpayer i n carrying on other similar or dissimila activities ; (6) th e taxpayer's history of income or losses wit h respect to th e activity ; (7) the amount of occasional profits, if any, which are earned ; (8) the financial status of the taxpayer ; and (9) th e elements of personal pleasure or recrea tion . Sec .'1 .183-2(b) , Income Tax Regs . 1 . Manner in Which the Taxpayer C I arries On the Activit y The fact that the taxpayer carries on the activity in ''a I businesslike manner may indicate that t he activity is engaged in for profit . Elliott v . Commissioner , 9 0 T .C . 960, 972 (1988), affd . without published opinion 899 F .2 18 (9th Cir . 1990) ; 1 Engdahl v . Commissioner , 72 T .C . 659, 6 6 (1979) ; sec . 1 .18 3 2(b)(1), Income Tax Regs . Relevant in d licators include it maintaining complete and accurate books and records, obtaining a business license, maintaining a separa t business bank account , developing a written business plan, hay ~ng a plausible strategy for earning a profit, and attempting ch inges in order to improve 10 - profitability . See Morley v . Commissioner , T .C . Memo . 1998-312 ; Holowinski v . Commissioner , T .C . Memo . 1997-168 ; Ellis v . Commissioner , T .C . Memo . 1984-50 ; sec . 1 .183-2(b)(1), Income Tax Regs . Petitioners did not keep a journal or a book of accounts fo r their charter fishing activity . Petitioners instead retained !'numerous credit card receipts and fuel and supply . invoices tha t reflect some of the expenses incurred with respect to that activity . Petitioners also produced a list of amounts and date s that generally reflect their charter fishing income . We are not convinced that petitioners' recordkeeping represented anything other .than an effort to substantiate expenses claimed on their ,returns . 3 For a taxpayer's books and records to reflect a businesslik e activity, the taxpayer's books and records must provide a method for measuring profits, controlling expenses, and evaluating the overall performance of the operation . Golanty v . Commissioner , it 72 T .C . 411, 430 (1979), affd . without published opinion 647 F .2d 170 (9th Cir . 1981) . Petitioners . did not present any evidenc e .3 We note that the acceptable level of detail required of ;books and records can vary according to the type of venture . While rudimentary bookkeeping could have been acceptable for an activity such as charter fishing, petitioners' records do not begin to rise to that level . Furthermore, while substantiatin g "expenses is necessary for any taxpayer, it is not sufficient to satisfy the books of account requirement of sec . 1 .183-2(b)(1), Income,Tax Regs . . - 11 - that they prepared and maintained records to evaluate the profitability of their operations .' Petitioners' failure to'fkeep contemporaneous accounting records .und rmines their asserted profit objective . Petitioner-did obtain the license required to run a sole proprietorship charter fishing busines for profit in Maryland . These licenses, however, appear to be necessary for any charter fishing activity to take place, and ar not necessaril y indicative of an actual profit motive . We also note that petitioner obtained his Coast Guard master license and commercial fishing license several years before petitioners began any charter fishing activity . Petitioner's licenses do not support , nor undercut, the asserted profit objective . While petitioners maintained a sep rate bank accoun t designated for the charter fishing activity, they commingled! charter fishing and . personal funds .' Such commingling does not support a finding that petitioners cond cted the activity'inla businesslike manner that would demonstr to a profit objective . See Ballich v . Commissioner , T .C . Memo .11978-497 . ' To the contrary, petitioner testified on cross-examination that he was surprised at trial to learn just how unprofitable his business was during the years at issue . s New ventures often require capital infusions, which might explain deposits of personal funds into a business bank account but would not explain deposits of busin ss funds into a personal account . it 12 - T Petitioners introduced a signed and dated business plan . While, the existence of a plan supports the asserted profit objective, it cannot alone prove such an objective . Petitioners made changes to their charter fishing activity t the end of 2005 and added winter charters from Virginia Beach , ,!=Virginia . Petitioners' decision to expand their charter fishing season supports their asserted profit objective . 6 On balance, this factor supports respondent's determination . 2. . Expertise of the Taxpayers or Their Advisers Preparation for the activity by extensive study of'!it s accepted business and economic practices or consultation with experts may indicate that the taxpayer has a profit objective where the taxpayer carries on the activity in accordance with ,,those practices . Sec . 1 .183-2(b)(2), Income Tax Regs . Before petitioners began their charter fishing activity , i petitioner called other charter operators in the area to !determine their pricing structure in order to establish :competitive rates . Petitioner ' s calls extracted little' information regarding business practices or the likelihood o f 6 We note however, that while this change in business 'practice may have provided additional income, it did not result in a profit . Petitioners' 2006 and 2007 Schedules C includ e (cid:127)'marked increases in receipts, but they still report substantial !!'losses . - 13 - success in the charter fishing busines .7 Petitioners failed to establish that they acquired any exper ise or took reasonabl e steps to acquire such expertise in the accepted business or :1 accounting practices required to run a profitable business . Petitioners . relied on their knowl dge of recreational illllll fishing to make their charter fishing activity profitable,, , apparently not recognizing that they would also have to control expenses relative to income . The lack of consultation with 1small business experts undercuts petitioners' claim that they engage d in the charter fishing activity with a profit objective . is This factor supports respondent's determination . 3 . Time and Effort Expende d The fact that a taxpayer devotes uch of his personal time and effort to carrying on the activity may indicate an intent to a profit, particularly if the activity does not have substantia l personal or recreational elements . Sec . 1 .183-2(b)(3), Income III Tax Regs . During the years at issue petitioners each maintained full- time employment that was not related to their charter fishing activity . Petitioners testified that a standard 8-hour charter fishing trip often required 13 hours of work from each petitioner . Nevertheless, as we discus in greater detail below , Petitioner testified that charte captains are, by andI large, a tight-lipped group, particular 1y when speaking to a, potential competitor about business practices . - 14 - charter fishing has substantial personal or recreational' aspects for petitioners . Id . The time petitioners spent working on the charter fishing activity is also . consistent with their, use of th e boat. for recreation . See Warden v . Commissioner , T .C . Memo . 1!995-176 (finding that the time taxpayers spent cleaning'and II maintaining their yacht was consistent with the use of the yach t for recreation), affd . without published opinion 111 F .3d 139 (9th Cir . 1997) . This factor is neutral . 4 . Expectation That Assets Used in the Activity May Appreciate in Valu e A taxpayer's expectation that assets such as land and othe r r tangible property used in an activity may appreciate in value an d generate, an overall profit may indicate that the taxpayer has a profit objective as to that activity . Sec . .1 .183-2(b)(4), Income Tax Regs . An overall pro.fit is present if net earnings and appreciation are sufficient to recoup losses sustained in prior years . Bessenyey v . Commissioner , 45 T .C . 261, 274 (1965), affd . 379 F .2d 252 (2d Cir . 1967) . Petitioners acknowledge that they had no expectation tha t the value of the boat would increase so much that it would offset II the losses incurred during the first 3 years of their charte r fishing activity . This factor does not support petitioners ' asserted profi t objective . !I Y - 15 - 5 . Success of Taxpayer in Carr in On Other Similar or!! Dissimilar Activities j The fact that the taxpayer has engaged in similar activities f in the past and converted them from unprofitable to profitabl e enterprises may indicate that he is engaged in the present : activity for profit, even though the activity is presently unprofitable . Sec . 1 .183-2(b)(5), Income Tax Regs . Though petitioners attempt to connect their prior wor k experience and their charter fishing a tivity, we do not find an y r evidence that petitioners' estimating nd law enforcemen t experience would indicate that they co ld transform an unprofitable charter fishing enterpriSE into a profitable one . This factor does not support petitioners' asserted profi t objective . 6 . History of Income or Losse s A series of losses during the init ial stage of an activity is not necessarily an indication that t he activity is not engage d r in for profit . Sec . 1 .183-2(b)(6), In ome Tax Regs . However , continued losses which . cannot be explai ned may indicate that~lthe activity is not engaged in for profit . Id . Petitioners did not earn charter f ishing receipts in exces s of their expenses during any of the tax years at issue . Petitioners claimed losses of $101,085 for 2003, $47,296 fo r 2004, and $33,769 for 2005 . Petitioner s had no clients and no .1 p - 16 - trips .in 2003, 14 clients and 21 trips in 2004, and 15 clients and 20 trips in 2005 . Although petitioners have offered explanations for continued losses, such as a slow economy and rising fuel costs, thei r ilk reasons do not rise to the level necessary to offset the size of 1 their losses for every year of their charter fishing activity . Further, petitioner's testimony regarding the tripling'of the number of charter fishing operations in his area does not suppor t his contention of a weak charter fishing market . We conclude that this factor does not support petitioners' asserted ; profit objective . 7 . Amount of Occasional Profit s An opportunity to earn a substantial . profit in a highl y speculative venture . is ordinarily sufficient to indicate that th e (I, activity is engaged in for profit even though losses or only poccasional small profits are . actually generated . Sec . 1 .183- '2 (b) (7) Income Tax Regs . Petitioners' charter fishing activity is not a highly speculative venture, such as oil prospecting . See sec . 1 .183- 2(a), Income Tax Regs . Further, there is no indication that a windfall profit may ever be generated by this particula r 1'activity . . Therefore, this factor does not support petitioners ' asserted profit objective . I 17 - 8 . Taxpayer ' s Financial Status The fact that the taxpayer does n from sources other than the activity m y indicate that the activity is engaged i n for profit . Se 1 .183 -2(b)(8), Incom e Tax Regs . Substantial income from ot h r sources may indicate th e lack of a profit objective, however , personal or recreational elements in t Petitioners' wage income for eac is substantial ; petitioners reported c o in 2003, $113,272 in 2004, and $93,162 in 2005 . Because of thei r Schedule C losses, petitioners realized for each year at issue . Considering t h recreational elements involved in petit activity, as we discuss below, this fac or undercuts petitioners' I g claim that they engaged in the activit y with an intent to profit without regard for tax savings . Se e loff v . Comm issioner , 81 T .C . at 233 ; sec . 1 .183-2(b)(8), Income This factor supports respondent's 9 . Elements of Personal Pleasure The presence .of personal motivesh i may indicate that the activity is not e particularly where there are recreation involved. Sec . 1 .183-2(b)(9), Income .T fact that the taxpayer derives personal I the activity, alone, is insufficient to foreclose for-profit - 18 - i ~Itreatment . Id . Mr . Beasley has been an avid waterman all his life!": Fishing can be a decidedly recreational . activity, and there is no ;evidence that petitioners do not derive personal pleasure from the activity . The personal pleasure or recreation tha t !!,petitioners derive from the-charter fishing activity, while not preclusive of a profit motive, also does not support petitioners ' assertion that they engaged in the activity primarily for profit . rSee id . II . Summary of Factor s Having considered the above factors and recognizing that no one factor is controlling, we conclude that even thoug h 'petitioners may have entered into the charter fishing activit y hoping for eventual profitability, the facts presented do not support a finding that, during the years at issue, petitioners ,engaged in their charter fishing activity with a profitliuobjectiv e ,,as defined by section 1 .183-2(b), Income Tax Regs . Accordingly , we hold that respondent correctly applied section 183 by allowin g expense deductions only to the extent of petitioners' income fro m 'charter fishing . III . Penaltie s By virtue of section 7491(c), the Commissioner has the burden of production with respect to the accuracy-related 19 - penalty . To meet . this burden, he must Produce .sufficien t evidence indicating that it is appropriate to impose the penalty . I See Higbee v . Commissioner , 116 T .C . 4381, 446 (2001) . Once th e Commissioner meets this burden of production, a taxpayer must,] come forward with persuasive evidence that the Commissioner's' determination is . incorrect . Rule 142(a) ; see Higbee v . Commissioner , supra . Respondent determined accuracy-related penalties unde r section 6662, which provides for a penalty equal to 20 percen t an underpayment if the underpayment is dlue to a substantial understatement of income tax . Sec . 66621(a) and (b)(2) . Section 'i 6662(d)(1)(A) defines a\substantial understatement of income ta x as an understatement that exceeds the gr of the tax required to be shown on the r .year ; or (ii) $5,000 . For each year at contained an understatement of income to 6662(d) (1) (A) definition, as follows : Tax Require d Year to be Shown Tax Shown j Understatemen t $17,589 2003 $17,589 -0-2004 13,869 $4,261 9,608 2005 9,111 3,541 5,57 0 A taxpayer may avoid the applicati o penalty by proving that he acted with re sonable cause and i good faith . See sec . 6664(c)(1) ; see al o Higbee v . S - 20 - Commissioner , supra at 446-447 ; sec . 1 .6664-4(a), Income Ta x Regs . . We analyze whether a taxpayer acted with reasonable cause .and good faith by examining the relevant facts and circumstances and,(cid:127)most importantly, the extent to which the taxpayer attempted I!to assess his proper tax liability . See Neely v . Commissioner , 85 T .C . 934, 947 (1985) ; Stubblefield v . Commissioner , . T .C . Memo . 111 1996-537 ; sec 1 .6664-4(b)(1), Income Tax Regs . In order for the ,reasonable cause exception to apply, the taxpayer must prove that he exercised ordinary business care and prudence as to the disputed .item ., See Neonatology Associates, P .A . v . Commissioner , 115 T .C . 43, 98 (2000), affd . 299 F .3d 221 (3d Cir . 2002) . Reliance upon the advice of a tax professional may establish reasonable cause and good faith for the purpose of avoidin g .liability for the section 6662(a) penalty . See United States v . Boyle , 469 U .S . 241, 250 (1985) . Reliance on a tax professiona l is not an "absolute defense" but merely "a factor to be 1!considered ." Freytag v . Commissioner , 89 T .C . 849, 888 (1987), affd . 904 F .2d 1011 (5th Cir . 1990), affd . 501 U .S . 868 (1991) . As a general rule, a taxpayer cannot shift the responsibility of filing an accurate return to a return preparer . Metra .Chem Corp . v . Commissioner , 88 T .C . 654, 662 (1987) . However, we have held that under certain circumstances the taxpayer may avoid th e I imposition of a penalty if there . was good faith reliance by th e ltaxpayer on the advice of a competent adviser . Jackson v . 21 - Commissioner , 86 T .C . 492, 539-540 (1986), affd . 864 F .2d 152 1 I (10th Cir . 1989) . Whether reasonable cause exists when' a taxpayer has relied on a tax professional to prepare a return must be determined on the basis of all of the facts and . circumstances . See Neonatology Associa es P .A . v . Co mm issioner , supra at 98 . The taxpayer claiming good faith reliance on a ,1 competent adviser must demonstrate thatl : "(1) The adviser was a competent professional who had sufficie t expertise to justify reliance, (2) the taxpayer provided nec ssary and accurate information to the adviser, and (3) the taxpayer actually reliied in good faith on the adviser's judgment " Id . at 99 . Relianc e on a return preparer is not reasonable -here even a cursory review of the return would reveal inacc4rate .entries . See Prat t v . Commissioner T .C . Memo 2002-27 9 1 For the years at issue petitioners had their Federal tax ! returns prepared by a professional prep rer . There is no evidence that petitioners' preparer was not competent or that'i petitioners were not justified in relying on the (cid:127)preparer' s expertise in preparing tax returns for individuals and sol e I proprietors . It does not .appear from the record that petitioner s 11 . were anything other than forthright with their preparer . Petitioners were not educated in account'ng or tax return preparation . Petitioners apparently relied on the preparer's l . judgment to complete and enter amounts ox proper schedules on :the ~' - 22 - returns . It appears that petitioners provided . accurat e .; information to their preparer for completion of their returns . This . is not a situation of omission of gross receipts o r exaggeration of expenses, but rather the proper reporting of 11 income and expenses governed by the Code, the regulations, an d the interpretation of the Code by myriad cases . On the basis o f ,,,the entire record and considering the demeanor and candor o f petitioners, we are satisfied that petitioners acted in good .i . faith in operating their charter fishing activity and in reporting the income and expenses therefrom . The Court finds that petitioners' reliance on their preparer was reasonable . We therefore do not sustain respondent's determination that petitioners are liable for the accuracy-related penaltie s pursuant to section 6662 . To, reflect our disposition of the issues , Decision will be entered for respondent with respect to the deficiencies and fo r petitioners with respect to the penalties .