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partnership investment to petitioner should have put petitioner
on guard that Freedman was engaged in selling rather than acting
as an independent adviser. “It is unreasonable for taxpayers to
rely on the advice of someone who they know has a conflict of
interest.” Addington v. Commissioner, 205 F.3d at 59; see also
Goldman v. Commissioner, 39 F.3d at 408; LaVerne v.
Commissioner, 94 T.C. at 652.
Likewise, Jacobson’s affiliation with Freedman should have
made petitioner wary of his recommendation. Jacobson was
employed by Freedman’s accounting firm, H.W. Freedman & Co.
H.W. Freedman & Co. prepared the tax returns for ECI, F&G, and
partnerships engaged in plastics recycling transactions. See
Provizer v. Commissioner, supra. Freedman was also named in the
offering memorandum as president of F&G, lessors of the
recyclers. Petitioner acknowledged at trial that Jacobson “was
more heavily involved in the investment than [petitioner]
realized”. Petitioner should have examined Jacobson’s motives
for recommending the investment. As a real estate attorney,
petitioner should have known to exercise caution in relying upon
his advice.
Petitioner’s testimony suggests that in investing in the
partnership he never had a profit motive beyond anticipated tax
savings. When asked at trial whether he expected that he would
receive a positive cashflow from his investment in the
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