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their investment and the tax claims were objectively
unreasonable. Furthermore, and again for the reasons discussed
above, petitioners’ failure to investigate further--beyond what
was made available to them by Mr. Hoyt and his organization--was
also not an objectively reasonable course of action.
C. Petitioners’ Investigation
Petitioners further argue that they had reasonable cause for
the underpayment because they made a reasonable investigation
into the partnership, taking into account the level of their
sophistication. Petitioners assert that this investigation
yielded no indication of wrongdoing by Mr. Hoyt, and petitioners
further assert that an average taxpayer would have been unable to
uncover Mr. Hoyt’s fraud. As we have held, petitioners’
investigation into the partnership went no further than members
of the Hoyt organization and Mr. Van Scoten’s father, who was
another Hoyt investor and who in turn was relying on the Hoyt
organization. Relying on these individuals as a source of
objective information concerning the partnerships was not
reasonable. Furthermore, petitioners were negligent in not
further investigating the partnership and/or seeking independent
advice concerning it.
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