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losses of $20,919 from Utah I. Utah I was eventually audited,
and the matter was resolved in Utah Jojoba I Research v.
Commissioner, T.C. Memo. 1998-6, which found that the activities
of the partnership did not constitute a trade or business and
that the agreements between the partnership and U.S. Agri
Research & Development Corp. had been designed and entered into
solely to provide a mechanism to disguise the capital
contributions of limited partners as currently deductible
expenditures.
As noted, in the notice of deficiency issued on July 17,
1998, respondent determined that petitioners are liable for
additions to tax for negligence pursuant to section 6653(a)(1)
and (2) and for a substantial understatement addition to tax
pursuant to section 6661.
Section 6653(a)(1) imposes an addition to tax in an amount
equal to 5 percent of an underpayment of tax if any part of the
underpayment is due to negligence or intentional disregard of
rules or regulations. Section 6653(a)(2) imposes an addition to
tax in an amount equal to 50 percent of the interest due on the
portion of the underpayment attributable to negligence or
intentional disregard of rules or regulations.
Respondent maintains that petitioners' underpayment was due
to negligence. Negligence is defined as the failure to exercise
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