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liable for the section 6662 penalty shifts to petitioners.
Higbee v. Commissioner, 116 T.C. 438, 447 (2001).
We have previously held that a taxpayer’s adoption of a
“flagrant tax avoidance scheme” repeatedly rejected by the courts
is patently negligent. Wesenberg v. Commissioner, 69 T.C. 1005,
1015 (1978); see also Gouveia v. Commissioner, T.C. Memo. 2004-
256; Hanson v. Commissioner, T.C. Memo. 1981-675, affd. 696 F.2d
1232 (9th Cir. 1983). However, as petitioners point out, the
implementation of a private annuity transaction using foreign
entities has not been consistently rejected by the courts.
Although this Court has subjected such transactions to strict
scrutiny and has upheld only a few, the Court of Appeals for the
Ninth Circuit has reversed this Court in several cases involving
private annuity transactions, holding that, on the facts of those
cases, the transactions had sufficient economic substance to be
respected for Federal income tax purposes. See Stern v.
Commissioner, 77 T.C. 614 (1981), revd. 747 F.2d 555, 558 (9th
Cir. 1984); LaFargue v. Commissioner, 73 T.C. 40 (1979), affd. in
part and revd. in part 689 F.2d 845 (9th Cir. 1982).
With this background in mind, we are unable to conclude that
a private annuity transaction using foreign entities is a
flagrant tax avoidance scheme that is per se negligent. Instead,
we look to the evidence introduced by the parties to determine
whether petitioners are liable for the section 6662 penalty.
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