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“Reliance on professional advice, standing alone, is not an
absolute defense to negligence, but rather a factor to be
considered”. Freytag v. Commissioner, 89 T.C. 849, 888 (1987),
affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991).
In order to be considered as such, the reliance must be
reasonable. Id. To be objectively reasonable, the advice
generally must be from competent and independent parties
unburdened with an inherent conflict of interest, not from the
promoters of the investment. Goldman v. Commissioner, 39 F.3d
402, 408 (2d Cir. 1994), affg. T.C. Memo. 1993-480; LaVerne v.
Commissioner, 94 T.C. 637, 652 (1990), affd. without published
opinion sub nom. Cowles v. Commissioner, 949 F.2d 401 (10th Cir.
1991), affd. without published opinion 956 F.2d 274 (9th Cir.
1992); Rybak v. Commissioner, 91 T.C. 524, 565 (1988); Edwards v.
Commissioner, T.C. Memo. 2002-169.
Petitioners invested in the Hoyt partnership in the latter
part of 1986. As part of their initial investment in the Hoyt
partnership, petitioners gave Mr. Hoyt the authority to sign a
promissory note on their behalf in the amount of $190,000.
Petitioners trusted the Hoyt organization when they were told
that this was a mere formality, necessary for their investment.
Petitioners did not investigate either the partnership as a
whole, or the implications of the $190,000 promissory note.
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