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not privy to HGTG’s financial and/or tax information. Instead,
those matters were within the jurisdiction of the trustee and
others. Schedules K-1 were not received by petitioner or Gammon
from the HGTG bankruptcy, and Gammon was not aware of the filing
of any Federal income tax return until after the filing of
petitioner’s 1994 return. Both petitioner and Gammon were aware
of the $557,257 settlement and attorney’s fees and other
deductions in the amounts of $224,156.25 and $1,419.88 that were
connected with HGTG’s portion of the resolution of the
litigation. Even though Gammon was aware of the settlement, he
believed that the losses and obligations of HGTG would cover and
eliminate any taxable income that may have been realized from the
settlement recovery.
Petitioner had no expertise with respect to Federal taxes
and relied upon Gammon for all such matters. Petitioner did not
understand the operation or mechanics of the bankruptcy
proceeding. Under these circumstances we hold that it was
reasonable for petitioner to rely on Gammon’s judgment and advice
with respect to the flow-through item. We are surprised that
Gammon did not make inquiry of the bankruptcy trustee about any
possible flow-through from HGTG to petitioner. Gammon’s failure
to inquire, considering petitioner’s background and knowledge
about such matters, does not make petitioner’s reliance
unreasonable. Accordingly, we hold that petitioner is not liable
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