- 38 -
indicated by reliance on facts that, unknown to the taxpayer, are
incorrect.” Id.
For the reasons discussed above in applying the negligence
standard, whether or not petitioner had an “honest mistake of
fact” does not alter our conclusion that petitioner’s actions in
relation to his investment and the tax claims were objectively
unreasonable. Furthermore, and again for the reasons discussed
above, petitioner’s failure to conduct an objectively reasonable
investigation--beyond what was made available to him by Mr. Hoyt
and his organization--was also negligent.
C. The Bales Opinion
Petitioner next argues that he had reasonable cause for the
underpayment because of this Court’s opinion in Bales v.
Commissioner, T.C. Memo. 1989-568.3 Bales 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
3Petitioner also argues that the opinion in Bales v.
Commissioner, T.C. Memo. 1989-568, provided “substantial
authority for the positions taken on petitioner’s 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 petitioner refers to
the “reasonable basis” exception to the negligence penalty, set
forth in sec. 1.6662-3(b)(3), Income Tax Regs., he does not
specifically argue that the exception applies in this case.
Nevertheless, we note that the record does not establish that
petitioner had a reasonable basis for claiming the partnership
loss at issue in this case.
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