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Petitioners have not alleged any facts to prove that
petitioner conducted an independent investigation to determine
whether the Clearwater transactions were an economic sham before
investing in the partnership or before claiming tax benefits
based on highly overvalued machinery. However, petitioners
contend that in light of the totality of the circumstances, the
limited nature of petitioner's investigation of the Clearwater
investment and the claiming of tax benefits therefrom were
reasonable. Petitioners refer to petitioner's summer employment
at Consolidated and his representation of SPI and BP after
graduation from law school. They conclude that in light of
petitioner's background, it was reasonable to simply rely on the
Clearwater private offering memorandum (and specifically on the
reports of Burstein and Ulanoff) and on alleged discussions with
Shea & Gould's tax partner.7 We disagree. Rather, we hold that
petitioner, a highly educated and sophisticated individual with a
very limited background in plastics, failed to exercise the due
care required under the circumstances of this case.
Section 6653(a)(1) and (2) imposes additions to tax if any
part of the underpayment of tax is due to negligence or
intentional disregard of rules or regulations. Negligence is
defined as the failure to exercise the due care that a reasonable
7 See infra note 8.
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