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Negligence
Section 6653(a)(1) and (2) imposes additions to tax if any
part of the underpayment of the tax is due to negligence or
intentional disregard of rules or regulations. Negligence is
defined as the failure to exercise the due care that a reasonable
and ordinarily prudent person would exercise under the
circumstances. See Neely v. Commissioner, 85 T.C. 934, 947
(1985). “When considering the negligence addition, we evaluate
the particular facts of each case, judging the relative
sophistication of the taxpayers as well as the manner in which
the taxpayers approached their investment.” Turner v.
Commissioner, T.C. Memo. 1995-363.
Petitioner contends that, although he is not a professional,
he thought that he reasonably investigated the investment, and he
was seeking a long-term investment, not merely a tax-sheltered
one.
Petitioners have not demonstrated that they reasonably
investigated their investment in the Utah Jojoba I partnership.
Petitioner discussed the investment with Mr. Maynes, knowing that
CFS was receiving a commission for the sale of the limited
partner interests. Therefore, the only person he discussed the
investment with was someone who had an economic interest in the
investment. Petitioners did not seek professional advice from
outside sources which was recommended in the prospectus.
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Last modified: May 25, 2011