- 13 -
that the deductions attributable to Mr. Aude's investment in the
transaction would give rise to a substantial understatement. Id.
In regard to the meeting, Mr. Gruys could not recall the
specifics of the tax discussion, such as whether tax writeoff
ratios were discussed or not. At this time, while explaining the
investment, Mr. Saranni did not say that the investment was a
sham, and Mr. Saranni did not say that the claimed losses would
be disallowed if the returns were audited. Furthermore, Mr.
Gruys did not tell the Audes that it was a sham investment, nor
did he advise the Audes of the audit risk. He merely recommended
that the Audes not purchase an interest in Magnum because it was
"an inappropriate investment."
An examination of the record reveals that Mr. Aude alone
executed the investment papers, and he made the required capital
contribution payments. Petitioner never saw the investment
papers, and was unaware of the amount of money that Mr. Aude
invested in Magnum. Further, Mr. Aude did not tell her that the
investment would save taxes or that it was a tax shelter.
Further, petitioner's lack of knowledge regarding the
transaction is corroborated by Mr. Gruys' responses. Mr. Gruys
only occasionally talked with petitioner; instead, he generally
saw only Mr. Aude. Never reviewing any papers regarding the
investment, Mr. Gruys relied on the Schedules K-1 prepared by
Magnum in his preparation of the Audes' returns. In advising the
Audes, Mr. Gruys did not speak to petitioner regarding the
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