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deficiencies determined against various investors in several Hoyt
partnerships. This Court found in favor of the investors on
several issues, stating that “the transaction in issue should be
respected for Federal income tax purposes.” Bales involved
different investors and different taxable years from the present
case. It also involved different underlying deductions; namely,
partnership deductions as opposed to Schedule F deductions.
Despite the differences between Bales and the present case,
petitioner argues that he relied on the Bales opinion in claiming
his Schedule F deductions. However, petitioner’s testimony on
direct examination is illuminating:
[Bales] was a court case. There was a--and I’m not
familiar with these type of documents, but in the left-
hand margin it had all these numbers in it, and it was
from the Supreme Court in California, Judge Divens, I
believe, was the name. I actually didn’t go through
the entire transcript. It was hard for me to follow
there, since I’m not a lawyer. But I read the abstract
that Hoyt provided with that that they sent out in a
newsletter where they--and they had highlighted that
the judge said that it was a legitimate business.
First, Bales was not decided by a Judge Divens of the Supreme
Court of California, but was decided by Judge Scott of the United
9(...continued)
for the positions taken on his return, thus relieving him from
liability from any penalty under sec. 6662(b)(2) and (d). See
sec. 6662(d)(2)(B)(i). Because we find that petitioner’s
underpayments were the result of negligence and therefore do not
address whether the underpayments were also attributable to
substantial understatements of tax, we need not consider whether
Bales is substantial authority for purposes of sec.
6662(d)(2)(B)(i).
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