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Negligence is defined as the “‘lack of due care or failure
to do what a reasonable or ordinarily prudent person would do
under the circumstances.’” Neely v. Commissioner, 85 T.C. 934,
947 (1985) (quoting Marcello v. Commissioner, 380 F.2d 499, 506
(5th Cir. 1967), affg. in part and remanding in part on another
ground 43 T.C. 168 (1964)); see Pasternak v. Commissioner, 990
F.2d 893, 902 (6th Cir. 1993), affg. Donahue v. Commissioner,
T.C. Memo. 1991-181. Negligence is determined by testing a
taxpayer’s conduct against that of a reasonable, prudent person.
Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th Cir. 1984), affg.
79 T.C. 714 (1982). Courts generally look both to the underlying
investment and to the taxpayer’s position taken on the return in
evaluating whether a taxpayer was negligent. Sacks v.
Commissioner, 82 F.3d 918, 920 (9th Cir. 1996), affg. T.C. Memo.
1994-217. When an investment has such obviously suspect tax
claims as to put a reasonable taxpayer under a duty of inquiry, a
good faith investigation of the underlying viability, financial
structure, and economics of the investment is required. Roberson
v. Commissioner, T.C. Memo. 1996-335, affd. without published
opinion 142 F.3d 435 (6th Cir. 1998) (citing LaVerne v.
Commissioner, 94 T.C. 637, 652-653 (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); Horn v. Commissioner, 90 T.C. 908, 942 (1988)).
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