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Appeal of this case is to the Court of Appeals for the Second
Circuit, which requires a knowledgeable expert before reliance on
his advice is deemed reasonable. Goldman v. Commissioner, 39
F.3d at 408.
The record in this case demonstrates that petitioner knew
virtually nothing about the Ridge Energy investment either before
or after making it. He chose instead to rely on an adviser with
no demonstrated knowledge or experience with respect to energy
management systems. In the circumstances, such reliance was not
reasonable and does not bar a finding of negligence. Goldman v.
Commissioner, supra; Freytag v. Commissioner, supra.
Accordingly, we sustain respondent's determination imposing
additions to tax under section 6653(a)(1) and (2) for
petitioner's 1983 taxable year.
Section 6661(a)
Section 6661(a) imposes an addition to tax equal to
10 percent of the amount of any underpayment attributable to a
substantial understatement of income tax. For a noncorporate
taxpayer, an understatement is "substantial" if it exceeds the
greater of $5,000 or 10 percent of the amount of tax required to
be shown on the return. Sec. 6661(b)(1)(A). Generally, the
understatement is the amount of tax required to be shown on the
return over the amount of tax imposed which is shown on the
return, reduced by that portion of the understatement
attributable to the treatment of an item for which there is or
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