- 7 -
factor to be considered. Freytag v. Commissioner, supra at 888.
In order for reliance on professional advice to excuse a taxpayer
from the negligence additions to tax, the reliance must be
reasonable, in good faith, and based upon full disclosure. Id.
Reliance on representations by insiders, promoters, or offering
materials has been held an inadequate defense to negligence.
LaVerne v. Commissioner, 94 T.C. 637, 652-653 (1990), affd.
without published opinion 956 F.2d 274 (9th Cir. 1992), affd.
without published opinion sub nom. Cowles v. Commissioner, 949
F.2d 401 (10th Cir. 1991); Marine v. Commissioner, 92 T.C. 958,
992-993 (1989), affd. without published opinion 921 F.2d 280 (9th
Cir. 1991). Reliance on a professional adviser can be inadequate
when the taxpayer and his adviser knew nothing about the nontax
business aspects of the venture. Beck v. Commissioner, 85 T.C.
557 (1985); Flowers v. Commissioner, 80 T.C. 914 (1983).
Based upon our review of the record in the instant case, we
find that petitioners' reliance on both Mr. Howell and Mr. Booker
was not reasonable. We do not believe Mr. Howell's experience as
a professional entertainer, with some experience in the recording
industry, gave him the expertise to properly evaluate the
economic sense of participation in Encore. We find that
petitioners have failed to show that Mr. Howell is a competent
professional financial adviser with respect to the leasing and
exploitation of a master recording. It is simply not reasonable
or prudent for petitioners to rely upon an adviser regarding
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