- 29 -
corporation was the R&D contractor and licensee of San Nicholas
and other jojoba partnerships. Indeed, at one time, Mr. Kellen
was also a director of U.S. Agri. Accordingly, any advice that
Mr. Kellen may have given was essentially that of an insider or
promoter, which advice is inherently suspect. E.g., Addington v.
Commissioner, 205 F.3d at 59; Pasternak v. Commissioner, 990 F.2d
at 903.
Petitioner also contends that he reasonably relied on advice
from Mr. Pace, the individual who furnished him with the offering
memorandum and promotional videotape. At the time of trial, Mr.
Pace was deceased; accordingly, we do not know first hand what
knowledge he may have had or what advice he may have given.25
The record does establish that Mr. Pace was the president of U.S.
Agri and a member of its board of directors. Petitioner, who was
Mr. Pace’s friend and business associate, was aware that Mr. Pace
was an interested party and that Mr. Pace had a conflict of
interest.
Reliance on promotional materials furnished by the promoter
of the partnership or by an interested party does not constitute
due care. See, e.g., Addington v. Commissioner, 205 F.3d at 59
(“It is unreasonable for taxpayers to rely on the advice of
someone who they should know has a conflict of interest.”).
25 In Utah Jojoba I Research v. Commissioner, T.C. Memo.
1998-6, the Court found that before 1983, Mr. Pace had only
limited knowledge of, and minimal background in, jojoba.
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011