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First, petitioners argue they relied on Bales in claiming
the deduction for the partnership loss. Without further
addressing the applicability of Bales to petitioners’ situation,
we find that petitioners have not established that they relied on
Bales in this manner. The record shows that petitioners relied
instead on the interpretation of Bales provided by Mr. Hoyt and
his organization, who repeatedly claimed that Bales was proof
that the partnerships and the tax positions were legitimate. We
have already found that petitioners’ reliance on Mr. Hoyt and his
organization was objectively unreasonable and, as such, not a
defense to the negligence penalty. Accepting Mr. Hoyt’s
assurances that Bales was a wholesale affirmation of his
partnerships and his tax claims was no less unreasonable.
Second, petitioners argue that, because this Court was
unable to uncover the fraud or deception by Mr. Hoyt in Bales,
petitioners as individual taxpayers were in no position to
evaluate the legitimacy of their partnership or the tax benefits
claimed with respect thereto. This argument employs the Bales
case as a red herring: The Bales case involved different
investors, different partnerships, different taxable years, and
different issues. Furthermore, adopting petitioners’ position
would imply that taxpayers should have been given carte blanche
to invest in partnerships promoted by Mr. Hoyt, merely because
Mr. Hoyt had previously engaged in activities which withstood one
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