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D. The Bales Opinion
Petitioners next argue that they had reasonable cause for
the underpayment because of this Court’s opinion in Bales v.
Commissioner, T.C. Memo. 1989-568.7 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
issue should be respected for Federal income tax purposes.” The
Bales case involved different investors, different partnerships,
different taxable years, and different issues than those
underlying the present case.
First, petitioners argue they relied on Bales in claiming
the deduction for the partnership loss. We find that petitioners
have not established that they relied on Bales in this manner.
While petitioners received the opinion, there is no evidence that
they, without any background in law or accounting, personally
relied upon the opinion in claiming the relevant partnership
loss. To the contrary, Mr. Van Scoten testified at trial that he
7Petitioners also argue that the Bales opinion provided
“substantial authority for the positions taken on petitioners’
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
petitioners refer to the “reasonable basis” exception to the
negligence penalty, set forth in sec. 1.6662-3(b)(3), Income Tax
Regs., they do not specifically argue that the exception applies
in this case. Nevertheless, we note that the record does not
establish that petitioners had a reasonable basis for claiming
the partnership loss at issue in this case.
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