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partnerships was not reasonable. Furthermore, even assuming that
an “average taxpayer” would have been unable to discover any
wrongdoing, petitioners were nevertheless negligent in not
further investigating the partnership and/or seeking independent
advice concerning it.
D. The Bales Opinion
Petitioners next argue that they had reasonable cause for
the underpayment because of this Court’s opinion in Bales v.
Commissioner, T.C. Memo. 1989-568.6 The Bales case involved
deficiencies asserted against various investors in several
different cattle partnerships marketed by Mr. Hoyt. This Court
found in favor of the investors on several issues, stating that
“the transaction in issue should be respected for Federal income
tax purposes.” Bales involved different investors, different
partnerships, different taxable years, and different issues than
those underlying the present case.
6Petitioners also argue that the opinion in Bales v.
Commissioner, T.C. Memo. 1989-568, provided “substantial
authority for the positions taken on petitioners’ 1991 income tax
return.” There is no explicit “substantial authority” exception
to the sec. 6662(a) accuracy-related penalty for negligence.
Hillman v. Commissioner, T.C. Memo. 1999-255 n.14 (citing Wheeler
v. Commissioner, T.C. Memo. 1999-56). While petitioners refer to
the “reasonable basis” exception to the negligence penalty, set
forth in sec. 1.6662-3(b)(3), Income Tax Regs., they do not
specifically argue that the exception applies in this case.
Nevertheless, we note that the record does not establish that
petitioners had a reasonable basis for claiming the partnership
loss at issue in this case.
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