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2. Worthlessness of Debts ..................... 240
B. Bona Fide Indebtedness Issue ................... 244
VI. Corona Transaction ................................. 254
VII. Sales of Receivables to TroMetro ................... 257
VIII. Summary of Conclusions So Far ...................... 259
IX. At-Risk and Passive Activity Loss Rules ............ 261
X. SMP’s Basis in SMHC Stock .......................... 262
XI. Accuracy-Related Penalties ......................... 264
A. Burden of Production ........................... 265
B. Gross Valuation Misstatements .................. 267
C. 20-Percent Accuracy-Related Penalties .......... 275
1. Negligence ................................. 275
2. Substantial Understatement of Income Tax ... 279
D. Reasonable Cause ............................... 284
1. August 1996 Memorandum From
Shearman & Sterling ........................ 289
2. Ernst & Young Memorandum ................... 292
3. May 12, 1997, Shearman & Sterling
Memorandum ................................. 293
4. October 10, 1997, Shearman & Sterling
Memorandum ................................. 298
5. February 26, 1998, Shearman & Sterling
Memorandum ................................. 301
6. Grant Thornton Memorandum .................. 303
7. Opinion From Chamberlain Hrdlicka .......... 307
8. Conclusion ................................. 311
XII. Evidentiary Matters ................................ 312
A. Daubert Issues ................................. 312
1. Mr. Crawford ............................... 313
2. Ms. Nemschoff .............................. 316
a. Ms. Nemschoff’s Expert Opinion ......... 317
b. Petitioner’s Arguments ................. 318
c. Court’s Analysis ....................... 319
3. Mr. Shapiro ................................ 322
a. Mr. Shapiro’s Expert Opinion ........... 322
b. Court’s Analysis ....................... 325
B. Mr. Jouannet’s Response (Exhibit 226-P) ........ 328
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