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The Court of Appeals for the Ninth Circuit has stated that
whether a taxpayer is to be treated as negligent under section
6653(a), (a)(1), and (a)(2), may be affected by “the legitimacy
of the underlying investment”. Sacks v. Commissioner, supra at
920.
Respondent’s determination of the negligence addition to tax
is presumptively correct, and the burden is on the taxpayer to
prove that the taxpayer’s underpayment of tax was not due to
negligence. Allen v. Commissioner, supra at 353; Laverne v.
Commissioner, supra at 652.
On the facts of this case, we conclude that petitioners did
not exercise due care and were negligent in making an investment
in Blythe II. Petitioners did not adequately consider the risks
associated with an investment in Blythe II. Petitioners did not
inspect the land which was to be used by the partnership.
Petitioners did not confer with experts in any credible manner
with regard to the investment. The review of the investment by
petitioners’ tax accountant was so superficial as to be
worthless.
Aspects of petitioner’s testimony are suspect. Dates are
missing from documents. Third parties who purportedly advised
petitioner did not testify.
The lack of legitimacy of the underlying activity relating
to the Blythe II partnership is indicated by our opinion in
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Last modified: May 25, 2011