- 54 -
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.5 The Court of Appeals for the Ninth
Circuit reversed our imposition of the negligence additions to
tax. Petitioners point out that the taxpayer in that case relied
in part upon a tax opinion contained in the offering materials.
However, the offering memoranda for the Partnerships herein
warned prospective investors that the accompanying tax opinion
letters were not in final form, and were prepared for the general
partner, and that prospective investors should consult their own
professional advisers with respect to the tax benefits and tax
risks associated with the respective Partnerships. The tax
opinion letters accompanying the SAB Reclamation and SAB
5 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 agreed to be bound by the Court's opinion regarding the
application of the additions to tax under sec. 6653(a), inter
alia. Accordingly, although the Court's analysis focused on one
taxpayer, the additions to tax were sustained with respect to all
of the taxpayers.
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