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At the time of trial, Kim testified as an officer of petitioners.
His testimony concerning what he, Forsyth, and others knew in
1986 and what he knew when he signed returns as a corporate
officer was evasive, ambiguous, and inconsistent.
In these cases, the volume of backdated documents in
evidence was substantial and included: 1983 contracts, 1986
licensing agreements, contracts for the sale of the TM
intangibles, and the promissory notes in the section 351
transactions. In addition to the versions of the documents that
petitioners claim are authentic, there are numerous versions of
many of the documents that contained varying price terms, party
names, interest rates, and maturity dates.
Respondent failed to prove by clear and convincing evidence
that petitioners' claimed reliance on C&L was fictitious.
However, for reliance to be a defense to negligence, petitioners
must prove that the reliance was reasonable. Freytag v.
Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th
Cir. 1990), affd. 501 U.S. 868 (1991).
Petitioners cannot claim reliance on their advisers' advice
if they failed to follow it. C&L advised that it was better not
to have related parties in the commercial paper transactions and
as guarantors. Forsyth testified that he had specifically
discussed the use of related parties with Onate and that
Forsyth's preference "was that the majority of the investors be
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