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risks and the warnings placed on the front page of the offering
memorandum would have alerted a prudent and reasonable investor
to the questionable nature of the promised deductions and
credits. See Collins v. Commissioner, 857 F.2d 1383, 1386 (9th
Cir. 1988), affg. T.C. Memo. 1987-217.
Petitioners' contention that they reasonably relied upon
Storey's advice is further undermined by petitioner's background
in manufacturing. In view of petitioner's success in various
manufacturing businesses, we find it difficult to accept the
proposition that he did not know or have reason to know that the
value of the Sentinel machine was grossly overstated.
In addition, petitioners contend that the investment was
reasonable because they expected to make a profit. We find that
petitioners' profit motive is not dispositive of the issue here
in dispute. Whether or not petitioners intended to profit from
their investment in Sunbelt, they failed to exercise due care in
claiming tax benefits from that investment. Their subjective
intent does not excuse them from the consequences of claiming
deductions and credits to which under the circumstances they were
clearly not entitled. See Klieger v. Commissioner, T.C. Memo.
1992-734.
We have considered and find unpersuasive petitioners'
arguments comparing this case with other cases that were resolved
in the taxpayers' favor with respect to the negligence addition
to tax.
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