Richard E. & Elizabeth S. Nilsen - Page 20




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          business for purposes of qualifying for an immediate deduction              
          under section 174.  However, in the instant cases, 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 II, Mr. Kellen, was            
          questionable, at best, as evidenced by conflicting statements in            
          the offering.  Also, it is apparent from the evidence presented             
          in these cases that Mr. Kellen 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.                                      
               The second issue is whether petitioners are 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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