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tax losses in the Corona transaction. Under the circumstances,
we believe that a reasonable and prudent person would recognize
that these tax losses were “‘too good to be true’”, especially
given that neither SMP, Corona, Somerville S Trust, nor Imperial
bore the economic loss associated with these tax losses. See
sec. 1.6662-3(b)(ii), Income Tax Regs.
Petitioner seeks to hide behind formal compliance with the
partnership tax rules. As an experienced tax attorney, Mr.
Lerner should have known that mere formal compliance with
statutory provisions would not sustain transactions that have no
economic substance and that are mere contrivances designed solely
to exploit tax benefits. Under the circumstances, we conclude
that reasonably prudent persons with Mr. Lerner’s tax experience
would not have conducted themselves as he did in reporting the
bases in the SMHC receivables and the substantial losses from the
transactions involving TroMetro and Imperial. Consequently, we
sustain respondent’s alternative determination that negligence
penalties are appropriate in these cases.194
194 Petitioner argues that negligence penalties do not apply
because the instant cases involve issues of first impression.
The accuracy-related penalty is inappropriate where an issue to
be resolved by the Court is one of first impression involving
unclear statutory language. Bunney v. Commissioner, 114 T.C.
259, 266 (2000); see Braddock v. Commissioner, 95 T.C. 639, 645
(1990) (holding penalties inapplicable where the issue has never
before been considered by any court, and the answer is not
entirely clear from the statutory language). Petitioner does not
point to the issues which he considers to be issues of first
(continued...)
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