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The Commissioner’s decision to impose the negligence penalty
is presumptively correct.2 Rule 142(a); Pasternak v.
Commissioner, supra at 902. Thus, a taxpayer has the burden of
proving that respondent’s determination is erroneous and that he
did what a reasonably prudent person would have done under the
circumstances. Bixby v. Commissioner, 58 T.C. 757, 791 (1972).
III. Application of the Negligence Standard
Although petitioner had no background in farming or
ranching, and petitioner did not consult any independent
investment advisers, petitioner made the decision to invest in a
cattle ranching activity as a means to provide for retirement.
As part of his initial investment in the Hoyt partnerships,
petitioner provided Mr. Hoyt with the authority to sign
promissory notes on his behalf in an amount of at least $75,000.
Petitioner also gave Mr. Hoyt the authority to control a number
of aspects of his investment, without requiring any confirmation
or consultation with petitioner. Nevertheless, petitioner placed
his trust entirely with the promoters of the investment and, as
discussed in detail below, he did not adequately investigate
either the legitimacy of the partnerships or the implications of
2While sec. 7491 shifts the burden of production and/or
burden of proof to the Commissioner in certain circumstances,
this section is not applicable in this case because respondent’s
examination of petitioner’s return did not commence after July
22, 1998. See Internal Revenue Service Restructuring and Reform
Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727.
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