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with a legitimate investment in light of contemporaneous
instability in oil prices and supplies. Given petitioner’s lack
of financial sophistication, the minimal explanation that she
received from Mr. Heitzman was sufficient to apprise her of the
existence of the transaction and to allay any questions she might
have had under the circumstances, while leaving her effectively
without any substantive knowledge of the transaction.
Petitioner’s awareness that Stonehurst was a “tax shelter”
is not particularly probative, in the context of her limited
financial sophistication, of whether she substantively knew of
the underlying transaction. As we have observed in similar
cases, in the late 1970's and early 1980's, a person such as
petitioner who did not understand tax matters could quite
reasonably interpret the term “tax shelter” as legitimately
sheltering income from tax, see, e.g., Foley v. Commissioner,
T.C. Memo. 1995-16, especially in light of Mr. Heitzman’s comment
that Stonehurst would “make a lot of money”. It was common
knowledge in the 1980's and earlier that “wily investors could
find legal ways and means of attaining spectacular tax benefits
through cunning investment strategies.” Friedman v.
Commissioner, 53 F.3d at 531. The fact that Stonehurst “was in
oil and gas” in 1979, a time when oil prices were rising, only
lent further credence to its potential value as a legitimate and
possibly quite lucrative investment.
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