- 19 -
Petitioner is precluded from relying upon a "lack of warning" as
a defense to negligence, when there is no evidence that a
reasonable investigation was ever made, and the offering
materials contained many warnings of the tax risks associated
with the investment.
On this record, the Court finds that petitioner did not
exercise the due care of a reasonable and ordinarily prudent
person under the circumstances. Consequently, the Court holds
that petitioner is liable for the negligence additions to tax,
under section 6653(a)(1) and (2) for 1982. Respondent is
sustained on this issue.
The second issue is whether petitioner is liable for the
addition to tax under section 6661(a) for a substantial
understatement of tax for 1982. Section 6661(a), as amended by
the Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509,
sec. 8002, 100 Stat. 1951, provides for an addition to tax of 25
percent of the amount of any underpayment attributable to a
substantial understatement of income tax for the taxable year. A
substantial understatement of income tax exists if the amount of
the understatement exceeds the greater of 10 percent of the tax
required to be shown on the return, or $5,000. See sec.
6661(b)(1)(A). Generally, the amount of an understatement is
reduced by the portion of the understatement that the taxpayer
shows is attributable to either (1) the tax treatment of any item
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011