- 13 -
regulations. For 1983 and 1984, section 6653(a)(2) imposes an
addition to tax in an amount equal to 50 percent of the interest
due on the portion of the underpayment attributable to
negligence. Negligence is defined as the failure to exercise due
care that a reasonable and ordinarily prudent person would employ
under the circumstances. Neely v. Commissioner, 85 T.C. 934, 947
(1985).
With respect to the issue of negligence, petitioners are
required to prove that their actions in connection with Series
162 were reasonable in light of their experience and the nature
of the investment. See Henry Schwartz Corp. v. Commissioner, 60
T.C. 728, 740 (1973). Within this framework, petitioners may
prevail if they reasonably relied on competent professional
advice. Freytag v. Commissioner, 89 T.C. 849 (1987), affd. 904
F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991). However,
"Reliance on professional advice, standing alone, is not an
absolute defense to negligence, but rather a factor to be
considered." Id. at 888. Furthermore, the Court has rejected
pleas of reliance when neither the taxpayer nor the advisers
purportedly relied upon by the taxpayer knew anything about the
nontax business aspects of the contemplated venture. Beck v.
Commissioner, 85 T.C. 557 (1985); Flowers v. Commissioner, 80
T.C. 914 (1983); Steerman v. Commissioner, T.C. Memo. 1993-447.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011