- 13 -
The reliance must be objectively reasonable; taxpayers
may not rely on someone with an inherent conflict of
interest, or someone with no knowledge concerning that
matter upon which the advice is given. In this regard,
the Supreme Court noted that "when an accountant or
attorney advises a taxpayer on a matter of tax law,
such as whether liability exists, it is reasonable for
the taxpayer to rely on that advice." [Fn. refs.
omitted.]
The Court of Appeals, in a footnote, made the comment that the
Chamberlain case "demonstrates that one may enter into a
transaction without a profit motive but not be negligent in
claiming a tax loss if that claim is in reasonable reliance on
the advice of a tax expert." Id. at 733 n.23.
Respondent contends that the Chamberlain holding is
distinguishable from petitioner's situation. The tax or
professional adviser in Chamberlain was an accountant
unaffiliated with the investment promoters or sellers and,
therefore, did not have a conflict of interest. See Chamberlain
v. Commissioner, T.C. Memo. 1994-228.
Finally, in Norgaard v. Commissioner, supra at 880, the
Court of Appeals for the Ninth Circuit found that the taxpayers'
method of accounting for gambling losses met the standard of due
care or "what a reasonable and prudent person would do" and
consequently that they were not negligent. Respondent contends
that Norgaard is distinguishable because the deductions in that
case would have been allowable if substantiated. Here,
petitioner must show that he met the standard of care that the
Court of Appeals for the Ninth Circuit found was met in Norgaard.
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