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purchases, petitioner put himself at risk for nearly $1 million
without consulting any independent investment advisers or cattle
valuation experts. Petitioner did not even have a clear
understanding of what he was purchasing. He initially thought he
was purchasing 73 head of cattle for $956,980, which was also
indicated in the letter from Cross and the bill of sale. Yet the
sales order indicates that he was purchasing 73 heifers for
$478,490 and 73 embryos for $478,490. There is no indication
that petitioner questioned this discrepancy. He did not examine
the cattle and the embryos he was purchasing. He did not even
keep copies of the promissory note, the security agreement, or
the board agreement. For these reasons, we conclude that
petitioner was negligent in entering into the investment.
The record is replete with facts that should have put
petitioner on notice of the suspect tax claims made on his tax
returns. First, and most obvious, is the timing of petitioner’s
deductions. Petitioner’s first contact with the Hoyt
organization was in February 1995. Petitioner did not begin his
investment until July 28, 1995. Despite this, petitioner claimed
Schedule F deductions on his 1994 return and then used the net
operating loss generated by those deductions to claim refunds for
1991, 1992, and 1993. Petitioner could not provide a rational
explanation of why he began taking Schedule F deductions in 1994
for an investment he entered into in 1995.
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