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attributable to petitioners’ investment in Hamilton. In each
case, petitioners contend that they were not negligent because:
(1) They reasonably relied in good faith upon the advice of a
competent and experienced accountant in deciding to invest in
Hamilton, and (2) they intended to make a profit from their
investment in Hamilton. Thornsjo also argues that he was not
negligent because he conducted a reasonable independent
investigation by consulting an unidentified Honeywell engineer
and a work colleague at his place of employment.
Section 6653(a)(1) and (2) imposes additions to tax if any
part of the underpayment of tax is due to negligence or
intentional disregard of rules or regulations. Negligence is
defined as the failure to exercise the due care that a reasonable
and ordinarily prudent person would exercise under the
circumstances. See Neely v. Commissioner, 85 T.C. 934, 947
(1985). The pertinent question is whether a particular
taxpayer’s actions are reasonable in light of the taxpayer’s
experience, the nature of the investment, and the taxpayer’s
actions in connection with the transactions. See Henry Schwartz
Corp. v. Commissioner, 60 T.C. 728, 740 (1973). When considering
the negligence additions to tax, we evaluate the particular facts
of each case, judging the relative sophistication of the
taxpayers, as well as the manner in which they approached their
investment. See McPike v. Commissioner, T.C. Memo. 1996-46.
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