Patricia A. Hendricks and John J. Hendricks - Page 16

                                       - 16 -                                         
          Commissioner, supra at 1507.  Petitioner may be put on notice of            
          the understatement if a reasonably prudent taxpayer in her                  
          position would be led to question the legitimacy of the                     
          deduction.  Id. at 1505.  The Court of Appeals for the Second               
          Circuit has concluded:                                                      
                    Tax returns setting forth large deductions, such                  
               as tax shelter losses offsetting income from other                     
               sources and substantially reducing or eliminating the                  
               couple’s tax liability, generally put a taxpayer on                    
               notice that there may be an understatement of tax                      
          See Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993),             
          affg. T.C. Memo. 1992-228.                                                  
               Mr. Hendricks was a farm and ranch real estate broker and an           
          investor, which required him to report his various investment               
          activities on Schedule E on the Hendrickses’ Federal income tax             
          return.  On their joint 1983 tax return, the Hendrickses claimed            
          $158,521 in losses arising from Boulder Oil and Gas.  This amount           
          did not appear on the face of the return, but it was listed on              
          Schedule E, combined with the income and expenses of at least 11            
          other properties, including the condominiums and an office                  
               Considering all of the circumstances, we conclude that                 
          petitioner was not put “on notice” of the understatement.  See              
          Boyle v. Commissioner, T.C. Memo. 1994-438.  We conclude that a             
          reasonably prudent taxpayer in petitioner’s position, at the time           
          of signing the return, could not be expected to know about the              

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011