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business for purposes of qualifying for an immediate deduction
under section 174. However, in the instant case, the partnership
was neither engaged in a trade or business nor conducting
research and development, either directly or indirectly.
Additionally, the experience in jojoba research and development
of the general partner of Blythe I, Mr. Kellen, was questionable,
at best, as evidenced by conflicting statements in the offering.
Also, it is apparent from the evidence presented in this case
that Mr. Kellen had minimal involvement in the partnership.
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 each of the years at issue.
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,
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