- 38 -
The taxpayers in the Reile case, a married couple, had only
1 year of college between them and characterized themselves as
financial "dummies." In the Davis case, the taxpayers relied
upon an adviser who was independent of the investment venture and
also relied upon their own review of the offering memorandum that
did not reflect that the principals in the venture lacked
experience in the pertinent line of business. This Court
concluded that it was reasonable for the taxpayers to rely on
such information without taking extreme and expensive steps to
verify it. In the Heasley case, the taxpayers were
unsophisticated, moderate-income investors who did not
independently investigate the venture at issue, or read the
accompanying prospectus in full. The Court of Appeals for the
Fifth Circuit declined to sustain the negligence additions to tax
because: (1) An independent investigation could have been
financially prohibitive; (2) the taxpayers read pertinent
portions of the prospectus and their advisers explained the rest;
and (3) the taxpayers monitored the investment.
In the instant case, petitioner knew or should have known
that Becker was not independent of the Partnerships. The record
shows that petitioner's ignorance of the Partnership transactions
was due not to a lack of experience, skills, or education. It
would not have been financially prohibitive for petitioner to
visit PI or to research the published information indicating that
the Sentinel EPE recycler was not a state-of-the-art plastics
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011