- 10 - Overlooking the lack of evidence, however, Mr. Meinke’s advice was clearly from someone with an inherent conflict of interest and as such cannot be the basis of petitioners’ defense to the negligence penalties. See Chamberlain v. Commissioner, supra; Rybak v. Commissioner, 91 T.C. 524, 565 (1988). Mr. Meinke was a promoter of the Yuma Mesa partnership and was a principal in the related entities. Petitioners were aware of this conflict of interest at the time of the investment and when they claimed the loss on their return. We find that petitioners’ decision to rely upon the advice of Mr. Meinke, who had helped to establish the partnership and who convinced petitioners to make their investment, was not the action of a reasonable or ordinarily prudent person under the circumstances. In their brief, petitioners cite Kantor v. Commissioner, 998 F.2d 1514 (9th Cir. 1993), affg. in part and revg. in part T.C. Memo. 1990-380. In Kantor, the Court of Appeals for the Ninth Circuit held that the taxpayers were not negligent because they were not acting unreasonably in claiming a section 174 deduction for the development of computer software. The court noted the almost complete absence of case law interpreting section 174 at the time the taxpayers claimed the deduction and stated that the taxpayers reasonably could have been led to believe by the general partner’s experience and involvement with the research project that they were entitled to the deduction. The courtPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
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