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Petitioner's investment in Republic represents almost 40
percent of her reported taxable income for 1982. She did not
have an attorney or accountant examine the investment.
Petitioner relied on Russell's verbal explanation of the
partnership and did not read the offering memorandum. Russell
told her that he had investigated "the partnership", and
petitioner "felt" that he had thoroughly investigated the
investment.
Although she was told in 1985 that "they were having success
in placing these machines," petitioner apparently took no action
to monitor her investment. It was in 1985 that petitioner last
spoke to Russell who filed for bankruptcy under Chapter 7 in that
year.
In January of 1995 petitioner for the first time received
notice that the investment tax credits from Republic were not
proper. On April 7, 1995, she paid the assessed taxes and
interest due as a result of respondent's disallowance of the
Republic deductions and credits.
In notices of deficiency for affected items issued on
February 17, 1995, respondent determined that the underpayments
of taxes for the years 1979 through 1982 are subject to the
negligence additions of section 6653(a)(1) and (2), and that the
tax underpayments are attributable to a valuation overstatement
as described in section 6659.
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