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exists, it is reasonable for the taxpayer to rely on
that advice. Most taxpayers are not competent to
discern error in the substantive advice of an
accountant or attorney. To require the taxpayer to
challenge the attorney, to seek a “second opinion,” or
to try to monitor counsel on the provisions of the Code
himself would nullify the very purpose of seeking the
advice of a presumed expert in the first place.
“Ordinary business care and prudence” do not demand
such actions. [Citation omitted.]
Respondent argued that petitioner was negligent and that
petitioner did not have a reasonable basis for his reporting
position regarding Jojoba. We agree that petitioner’s reliance
on the offering materials and on the advice of his accountant is
not an adequate defense.
It is well settled that a taxpayer’s reliance upon offering
materials prepared in connection with the sale of an investment
or upon the representations of investment insiders and promoters
is not reasonable. Goldman v. Commissioner, 39 F.3d 402 (2d Cir.
1994) (reliance on representations by insiders, promoters, or
offering materials is an inadequate defense to negligence), affg.
T.C. Memo. 1993-480; Becker v. Commissioner, T.C. Memo. 1996-538.
In this case, not only was petitioner’s reliance on the offering
materials not reasonable, but petitioner ignored provisions in
the PPM warning him to consult a competent and independent
adviser.7
7The PPM did not make any affirmative statements indicating
that the research and development deduction would be allowed by
the IRS and, in fact, warned against misconstruing the document
(continued...)
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