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In that regard, petitioner’s knowledge was more than
cursory. As the events surrounding the value writedowns
unfolded, Mr. Pierce used petitioner as a “sounding board” and
explained to her the circumstances that precipitated the
writedowns. He also explained the effects of the writedowns on
the business. The record reflects that it was Mr. Pierce’s usual
and normal practice to provide petitioner with explanations of
business documents she signed, including the tax returns.
In particular, petitioner was aware that Mary Catherine was
in a precarious financial position because of the severe declines
in real estate values. At the time of signing the tax returns,
she also knew that the net operating loss deductions taken in
connection with the decline in real estate values would result in
significant refunds.
In addition, the facts surrounding the reasons for the
claimed losses were fully divulged and explained on disclosure
statements which were made a part of the tax returns. The first
page of the Pierces’ 1989 and 1990 tax returns listed loss
deductions of approximately $2.2 million and $2 million. The
disclosure statements were in narrative form and provided
complete details of the circumstances surrounding the deductions,
including information such as a description of Mary Catherine’s
business activity, the specifics relating to the decline in real
estate values, the revised appraisals of the properties, and the
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