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information regarding the manner in which the Hoyt organization
operated the Hoyt partnerships, including the ones in which
petitioner and Mr. Foy had invested. The record does not
indicate that respondent considered any of the information that
was available to him in September 2002 before adopting his
administrative position. Respondent’s failure to properly apply
the actual knowledge standard in the context of the information
he had acquired regarding Mr. Hoyt and the Hoyt organization in
this case cannot be rationalized. Respondent’s lack of diligence
in evaluating his ability to prove actual knowledge, therefore,
was not justified. See Stieha v. Commissioner, 89 T.C. 784, 791
(1987) (Commissioner’s lack of diligence in evaluating the impact
of recent court opinions not substantially justified).
Third, the record discloses no meaningful effort on the part
of respondent to properly analyze section 6015(c) with respect to
the position, as determined by respondent, that petitioner and
Mr. Foy had invested jointly in the Hoyt partnerships. In an
“EXPLANATION OF ITEMS” attached to the Appeal Transmittal
Memorandum and Appeals Case Memo that was prepared with respect
to petitioner’s section 6015 request, the Appeals Office took the
position that “Joint investments in the tax shelter partnerships
are considered actual knowledge and an erroneous item
attributable to both spouses” and determined that in the present
case: “The taxpayers were into the tax shelter jointly. The
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