Michael E. and Johanna S. Davis - Page 19




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          neither engaged in a trade or business nor conducting research              
          and development, either directly or indirectly.  Additionally,              
          the offering made clear that the general partner, Mr. Matsuda,              
          had no experience in jojoba research and development.  Also, it             
          is apparent from the evidence presented that Mr. Matsuda had                
          minimal involvement in the partnership.  Petitioners are                    
          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 petitioners did not               
          exercise the due care of reasonable and ordinarily prudent                  
          persons under the circumstances.  Consequently, the Court holds             
          that petitioners are liable for the negligence additions to tax             
          under section 6653(a)(1) and (2) for each of the years at issue.            
          Respondent is sustained on this issue.                                      
               To the extent the Court has failed to address an argument of           
          petitioners herein, the Court concludes such argument is without            
          merit.                                                                      
               Reviewed and adopted as the report of the Small Tax Case               
          Division.                                                                   


                                                  Decision will be entered            
                                             for respondent.                          





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