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the beginning, petitioners [Gollin, Fishbach, and Fredericks]
never had any money in the * * * [Partnership transactions]." In
view of the disproportionately large tax benefits claimed on
petitioners' Federal income tax returns, relative to the dollar
amounts invested, further investigation of the Partnership
transactions clearly was required. A reasonably prudent person
would have asked a qualified independent tax adviser if this
windfall were not too good to be true. McCrary v. Commissioner,
92 T.C. at 850. A reasonably prudent person would not conclude
without substantial investigation that the Government was
providing tax benefits so disproportionate to the taxpayers'
investment of their own capital.
Petitioners' reliance upon the Court of Appeals for the
Ninth Circuit's partial reversal of our decision in Osterhout v.
Commissioner, T.C. Memo. 1993-251, affd. in part and revd. in
part without published opinion sub nom. Balboa Energy Fund 1981
v. Commissioner, 85 F.3d 634 (9th Cir. 1996), is misplaced. In
Osterhout, we found that certain oil and gas partnerships were
not engaged in a trade or business and sustained respondent's
imposition of the negligence additions to tax with respect to one
of the partners therein.12 The Court of Appeals for the Ninth
12 Osterhout v. Commissioner, T.C. Memo. 1993-251, affd. in
part and revd. in part without published opinion sub nom. Balboa
Energy Fund 1981 v. Commissioner, 85 F.3d 634 (9th Cir. 1996),
involved a group of consolidated cases. The parties therein
(continued...)
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