- 22 -
that of a reasonable, prudent person. Anderson v. Commissioner,
supra at 1272-1273. 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. Id.; Keeler v.
Commissioner, 243 F.3d 1212, 1221 (10th Cir. 2001), affg. Leema
Enters., Inc. v. Commissioner, T.C. Memo. 1999-18; 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)).
The Commissioner’s decision to impose the negligence penalty
is presumptively correct.6 Rule 142(a); Anderson v.
Commissioner, supra at 1271. A taxpayer has the burden of
proving that respondent’s determination is erroneous and that he
6While 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 petitioners’ 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.
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011