Don Ballantyne and Susanne C. Ballantyne - Page 20

          of deficiency with respect to all other matters.  Petitioners               
          claim, however, that they were not negligent, that they reasonably          
          relied on the advice of experts, and that there was substantial             
          authority for their position.                                               
               Sections 6653(a)(2) and 6653(a)(1)(B) impose an addition to            
          tax of 50 percent of the interest on the portion of an underpayment         
          of tax attributable to negligence or intentional disregard of rules         
          or regulations.  Negligence is defined as the failure to exercise           
          the due care that a reasonable, prudent person would exercise under         
          similar circumstances.  Zmuda v. Commissioner, 731 F.2d 1417, 1422          
          (9th Cir. 1984), affg. 79 T.C. 714 (1982); Neely v. Commissioner,           
          85 T.C. 934, 947 (1985).                                                    
               Reliance on professional advice, by itself, is not an absolute         
          defense to negligence.  A taxpayer first must demonstrate that his          
          reliance was reasonable.  Freytag v. Commissioner, 89 T.C. 849, 888         
          (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868             
          (1991).  Here, petitioners failed to do so.                                 
               Petitioner engaged in sham transactions.    Petitioner                 
          participated in the backdating of documents and in highly                   
          questionable transactions.  A prudent person would not have                 
          believed that these purported transactions served a purpose other           
          than tax avoidance.                                                         
               We conclude that petitioners were negligent and did not                
          reasonably rely on the advice of experts.    Consequently,                  
          petitioners are liable for the additions to tax under sections              

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