- 40 -
tax based upon the decisions in the Durrett and Chamberlain cases
by the Court of Appeals for the Fifth Circuit.
4. Conclusion as to Negligence
Under the circumstances of this case, petitioners failed to
exercise due care in claiming a large loss deduction and tax
credits with respect to Plymouth on their 1981 Federal income tax
return. Petitioner declined to read the offering memorandum,
visit PI, or otherwise learn about the Plymouth transactions and
the Sentinel EPE recycler to any significant extent. Instead,
petitioner purports to have relied on Bach, the accountant he
only recently had retained to prepare petitioners' tax return.
Bach had no education or experience in plastics materials or
plastics recycling, and he ultimately relied upon the offering
memorandum for the value of, capabilities, and market demand for
the machines. The tax benefits flowing from Plymouth were
contingent upon the purported value of the Sentinel EPE recycler.
Yet neither petitioner nor Bach in good faith investigated the
fair market value of a Sentinel EPE recycler, or the underlying
viability, financial structure, and economics of the Plymouth
transaction. We hold, upon consideration of the entire record,
that petitioners are liable for the negligence additions to tax
under section 6653(a)(1) and (2) for the taxable year at issue.
We note that in this case because of sanctions, petitioners have
the burden of proof with respect to negligence. However, on this
record respondent has proved petitioners' negligence, and our
Page: Previous 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 NextLast modified: May 25, 2011