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In this case, Tempesta, Foster, and White were sophisticated
professionals with investment experience and should have been
alerted to the questionable economic nature of the ADR
transaction. They, however, failed to take even the most
rudimentary steps to investigate the bona fide economic aspects
of the ADR transaction. See Freytag v. Commissioner, supra. As
set forth in the findings of fact, petitioner did not investigate
the details of the transaction, the entity it was investing in,
the parties it was doing business with, or the cash-flow
implications of the transaction. Petitioner offered no evidence
that it satisfied the "reasonable and ordinarily prudent person"
standard or relied on the advice of its tax department or
counsel. If any communications occurred in which consideration
was given to the correctness of petitioner's tax return position
when the return was prepared and filed, petitioner has chosen not
to disclose those communications. We conclude that petitioner
was negligent, and the section 6662(a) penalty is appropriately
applied.
Our holding in this opinion will be incorporated into the
decision to be entered in this case when all other issues are
resolved.
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