John Y. & Marion Robnett - Page 10




                                       - 10 -                                         
               Overlooking the lack of evidence, however, Mr. Meinke’s                
          advice was clearly from someone with an inherent conflict of                
          interest and as such cannot be the basis of petitioners’ defense            
          to the negligence penalties.  See Chamberlain v. Commissioner,              
          supra; Rybak v. Commissioner, 91 T.C. 524, 565 (1988).  Mr.                 
          Meinke was a promoter of the Yuma Mesa partnership and was a                
          principal in the related entities.  Petitioners were aware of               
          this conflict of interest at the time of the investment and when            
          they claimed the loss on their return.  We find that petitioners’           
          decision to rely upon the advice of Mr. Meinke, who had helped to           
          establish the partnership and who convinced petitioners to make             
          their investment, was not the action of a reasonable or                     
          ordinarily prudent person under the circumstances.                          
               In their brief, petitioners cite Kantor v. Commissioner, 998           
          F.2d 1514 (9th Cir. 1993), affg. in part and revg. in part T.C.             
          Memo. 1990-380.  In Kantor, the Court of Appeals for the Ninth              
          Circuit held that the taxpayers were not negligent because they             
          were not acting unreasonably in claiming a section 174 deduction            
          for the development of computer software.  The court noted the              
          almost complete absence of case law interpreting section 174 at             
          the time the taxpayers claimed the deduction and stated that the            
          taxpayers reasonably could have been led to believe by the                  
          general partner’s experience and involvement with the research              
          project that they were entitled to the deduction.  The court                






Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  Next

Last modified: May 25, 2011