Daniel L. and Ingrid N. Carroll - Page 24




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          and ordinarily prudent person would exercise under the                      
          circumstances.  See Neely v. Commissioner, 85 T.C. 934, 947                 
          (1985).  The pertinent question is whether a particular                     
          taxpayer's actions are reasonable in light of the taxpayer's                
          experience, the nature of the investment, and the taxpayer's                
          actions in connection with the transactions.  See Henry Schwartz            
          Corp. v. Commissioner, 60 T.C. 728, 740 (1973).  In this regard,            
          the determination of negligence is highly factual.  “When                   
          considering the negligence addition, we evaluate the particular             
          facts of each case, judging the relative sophistication of the              
          taxpayers as well as the manner in which the taxpayers approached           
          their investment."  Turner v. Commissioner, T.C. Memo. 1995-363.            
               Petitioners claimed operating losses and investment and                
          energy tax credits relying almost exclusively on representations            
          in the Clearwater offering memorandum.  Petitioners did not hire            
          an independent industry expert to evaluate the profitability of             
          their investment, nor did they employ an accountant to verify the           
          correctness of the position on their tax return.                            
               Petitioners contend that because of petitioner’s background            
          in chemical engineering and patent law, he possessed sufficient             
          expertise to evaluate the Clearwater transaction, making it                 
          unnecessary to hire an expert to do the same.  Petitioners claim            
          that petitioner drew on his background to conclude that the EPE             
          recyclers were unique (based on the purportedly unique blade                





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