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minimal and occasional inquiries do not demonstrate that
petitioners were concerned with the business aspects or the
economic profitability of Hamilton. Instead, these circumstances
confirm petitioners’ true motivation for investing in Hamilton,
which was to receive tax benefits.
4. Conclusion as to Negligence
We find that petitioners failed to exercise due care in
claiming large deductions and tax credits with respect to
Hamilton on their Federal income tax returns. It was not
reasonable for petitioners to rely on the offering memorandum,
insiders to the transaction, or Schluter. Schluter relied upon
the offering memorandum for the value of the recyclers. Neither
Schluter nor petitioners undertook a good faith investigation of
the fair market value of the recyclers or the underlying economic
viability or financial structure of Hamilton. Accordingly, we
hold that petitioners are liable for the negligence additions to
tax under section 6653(a)(1) and (2).
B. Section 6659 Valuation Overstatement
In his notices of deficiency, respondent determined that
petitioners were liable for section 6659 additions to tax on the
portions of their respective underpayments attributable to
valuation overstatements. Under section 6659, a graduated
addition to tax is imposed when an individual has an underpayment
of tax that equals or exceeds $1,000 and is attributable to a
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