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entirely from petitioner's acquaintance with Grant. As to
petitioner's reliance on the offering memorandum, the record
indicates that petitioner either did not read the offering
memorandum in its entirety or was careless when doing so.
Petitioners' reliance on Epsten v. Commissioner, T.C. Memo.
1991-252, is misplaced. The taxpayers in Epsten invested in a
grantor trust that sold and leased IBM computers. The activities
of the trust were not an economic sham; they had economic
substance. There was a reasonable possibility of an economic
profit to both the trust and the taxpayers apart from the
attendant tax benefits. Both the trust and the taxpayers had an
actual and honest profit objective with respect to the
transactions at issue. While the taxpayers in the Epsten case
conceded disallowance of the tax benefits because they were not
at risk pursuant to section 465, the Court did not find them
negligent under section 6653(a). However, it was not the
taxpayers' reliance on the offering memorandum and other
documents that absolved them of negligence. Rather, at the time
of their investment there was little case law interpreting the
recently enacted section 465(b)(4). Consequently, there were no
indications that the professional advice given the taxpayers was
not reasonable.
In the instant case, petitioners invested in a transaction
that had no economic substance, and neither they nor Northeast
could have reasonably expected to realize an economic profit.
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