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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 careful
consideration of the materials in the offering memoranda in these
cases, especially the discussions of high writeoffs and risk of
audit, should have alerted a prudent and reasonable investor to
the questionable nature of the promised deductions and credits.
See Collins v. Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988),
affg. Dister v. Commissioner, T.C. Memo. 1987-217; Sacks v.
Commissioner, T.C. Memo. 1994-217, affd. 82 F.3d 918 (9th Cir.
1996). 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 the
Commissioner's imposition of the negligence additions to tax with
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