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Thompson’s letter concluded with the following paragraph:
Notwithstanding the foregoing risks, however, the
items on your Partnership K-1 may be used as is for the
reason that both the valuation overstatement penalty
and the substantial understatement of income tax
penalty are waived whenever the taxpayer (i.e., you)
can show there was a reasonable basis for the claims
made and that such claims were made in good faith. The
[offering] memorandum, as well prepared as it is,
should be an adequate “reasonable basis” upon which to
base the filing of your Form 3468. Additionally, I
believe you may rely upon it in good faith
notwithstanding this letter, for this letter is no more
legally enforceable than the Memorandum.
After petitioner received Thompson’s letter, petitioner
prepared Form 3468 in his own hand, using the partially completed
copy prepared by Thompson as a model. Petitioner then completed
petitioners’ Federal income tax return (Form 1040), which
petitioners signed on April 11, 1983.
In preparing petitioners’ tax return for 1982, petitioner
followed his custom of preparing petitioners’ returns himself
without the assistance of a return preparer.10
I. Petitioners’ Tax Returns
1. The Whitman Partnership
The tax benefits claimed by petitioners on their Federal
income tax return for 1982, the initial year of investment in
Whitman, exceeded their $15,000 investment in the partnership.
Thus, on their 1982 return, petitioners claimed a regular
10 Petitioner also prepared petitioners’ tax return for
1983 without the assistance of a return preparer.
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