WEITZMAN v. COMMISSIONER ( 2001 )


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  •                           T.C. Memo. 2001-215
    UNITED STATES TAX COURT
    JEFFREY H. WEITZMAN, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent
    Docket No. 467-00.                         Filed August 13, 2001.
    Jeffrey H. Weitzman, pro se.
    Christine Colley, for respondent.
    MEMORANDUM OPINION
    DEAN, Special Trial Judge:     In a so-called affected items
    notice of deficiency, respondent determined petitioner is liable
    for additions to tax of $1,080 under section 6653(a)(1), 50
    percent of the interest due on $21,604 under section 6653(a)(2),
    and $5,001 under section 6659 for the 1982 taxable year.1
    1
    Unless otherwise indicated, section references are to the
    (continued...)
    - 2 -
    Petitioner concedes that he is liable for an addition to tax
    of $5,001 pursuant to section 6659 for an underpayment of tax
    attributable to valuation overstatement.   The remaining issue for
    decision is whether petitioner is liable for additions to tax
    pursuant to section 6653(a)(1) and (2) for negligence or
    intentional disregard of rules or regulations.
    Background
    The stipulation of facts and the accompanying exhibits are
    incorporated herein by reference.   Petitioner resided in New
    York, New York, at the time his petition was filed with the
    Court.
    This case is part of the Plastics Recycling group of cases.
    The additions to tax arise from the disallowance of losses,
    investment credits, and energy credits claimed by petitioner with
    respect to a partnership known as Foam Recycling Associates (Foam
    or the partnership).
    For a detailed discussion of the transactions involved in
    the Plastics Recycling group of cases, see Provizer v.
    Commissioner, T.C. Memo. 1992-177, affd. per curiam without
    published opinion 
    996 F.2d 1216
    (6th Cir. 1993).   The parties
    have stipulated that the underlying transactions in petitioner’s
    1
    (...continued)
    Internal Revenue Code in effect for the year in issue, and all
    Rule references are to the Tax Court Rules of Practice and
    Procedure.
    - 3 -
    case are substantially identical to the transactions in Provizer
    v. 
    Commissioner, supra
    .   In Provizer, the Court held that the
    transactions involving Sentinel EPE2 recyclers (recyclers) were
    so lacking in economic substance that they were to be disregarded
    for Federal income tax purposes.
    In a series of simultaneous transactions closely resembling
    those in Provizer, Packaging Industries Group, Inc. (PI),
    manufactured and sold3 four recyclers to Ethynol Cogeneration,
    Inc. (ECI), for $3,924,000.   ECI agreed to pay PI $327,000 for
    the recyclers at closing, with the balance of $3,597,000 financed
    through a 12-year nonrecourse promissory note (ECI note).    ECI
    resold the recyclers to F&G Equipment Corp. (F&G) for $4,650,668.
    F&G agreed to pay $377,000 in cash, with the balance of
    $4,273,668 financed through a 12-year partial recourse promissory
    note (F&G note).   The F&G note was purportedly recourse to the
    extent of 20 percent of its face value; however, the recourse
    portion was payable only after the nonrecourse portion was
    satisfied.
    2
    EPE stands for expanded polyethylene.
    3
    Terms such as “sale” and “lease”, as well as their
    derivatives, are used for convenience only and do not imply that
    the particular transaction was a sale or lease for Federal tax
    purposes. Similarly, terms such as “joint venture” and
    “agreement” are also used for convenience only and do not imply
    that the particular arrangement was a joint venture or an
    agreement for Federal tax purposes.
    - 4 -
    F&G leased the recyclers to Foam under a lease term of 9-1/2
    years, and the partnership entered into a joint venture with PI
    to “exploit” the recyclers and place them with end-users.     The
    partnership also agreed to pay a $50,000 consulting fee to John
    Bambara, president and controlling shareholder of PI.
    In connection with these transactions, PI was required to
    pay a monthly joint venture fee to Foam, in the same amount as
    Foam’s monthly base rent to F&G, in the same amount as F&G’s
    monthly payment to ECI on the F&G note, in the same amount as
    ECI’s monthly payment to PI on the ECI note.   All of these
    entities, however, entered into offset agreements making the
    foregoing payments nothing more than bookkeeping entries.
    By a private placement offering memorandum (offering
    memorandum) prepared by the law firm of Windels, Marx, Davies &
    Ives dated August 30, 1982, 12 limited partnership units in Foam
    were offered to potential investors at $50,000 per partnership
    unit.   Pursuant to the offering memorandum, the limited partners
    would own 99 percent of Foam, and the general partner, Richard
    Roberts, would own the remaining 1 percent.    As provided by the
    offering memorandum, each limited partner was required to have a
    net worth (including residence and personal property) of more
    than $1 million or have income in excess of $200,000, for each
    investment unit.
    - 5 -
    The offering memorandum informed investors that Foam’s
    business would be conducted in accordance with the transactions
    described above.   The offering memorandum was replete with
    warnings.   The front page of the memorandum cautioned in bold
    capital letters that “THIS OFFERING INVOLVES A HIGH DEGREE OF
    RISK”.   Significant business and tax risks associated with an
    investment in the partnership were specifically enumerated in the
    offering memorandum.   Those risks included the following:
    (1) There was a substantial likelihood of audit by the Internal
    Revenue Service (IRS), and the IRS might challenge the fair
    market value of the recyclers, recharacterize F&G’s lease to the
    partnership as other than a bona fide lease, and assert that the
    partnership transactions were not conducted with the objective of
    making an economic profit exclusive of tax benefits; (2) the
    partnership had no prior operating history; (3) the management of
    the partnership’s business would be dependent on the services of
    the general partner, who had limited experience in marketing
    recycling or similar equipment and who was only required to
    devote such time to the affairs of the partnership as he deemed
    necessary; (4) the limited partners would have no control over
    the conduct of the partnership’s business; (5) there were no
    assurances that market prices for new resin pellets would remain
    at the current cost per pound or that the recycled pellets would
    - 6 -
    be as marketable as virgin pellets; and (6) certain potential
    conflicts of interest existed.
    The disclosure of potential conflicts of interest in the
    offering memorandum made clear that the parties involved in the
    partnership transactions had ongoing business relationships and
    that many of the individuals involved had interests in more than
    one entity involved in the transactions.   The memorandum revealed
    that:   (1) Richard Roberts (Roberts), the general partner of Foam
    was a 9-percent shareholder of F&G; (2) the executive vice
    president of PI was a 9.1-percent shareholder of F&G; (3) Elliot
    Miller (Miller), general counsel for PI, was a 9.1-percent
    shareholder of F&G; and (4) Miller was the attorney for Samuel
    Burstein, one of the F&G evaluators, and Miller also represented
    Roberts in connection with certain tax and other matters, F&G in
    corporate matters, and other individuals involved in the
    transactions in a variety of matters.
    The absence of independent representation was also stressed
    in the offering memorandum:
    Prospective purchasers have not been independently
    represented in connection with the structuring or
    conduct of the Offering. Each prospective purchaser is
    urged to seek independent advice and counsel before
    making an investment in the Partnership.
    The offering memorandum prominently touted the anticipated
    tax benefits for a limited partner in the initial year of
    investment:
    - 7 -
    The principal tax benefits expected from an
    investment in the Partnership are to be derived from
    the Limited Partner’s share of investment and energy
    tax credits and tax deductions expected to be generated
    by the Partnership in 1982. The tax benefits on a per
    Unit basis are as follows:
    Projected
    Regular Investment       Projected Tax
    Payment   and Energy Tax Credits       Deductions
    1982   $50,000         $76,736                  $39,878
    The Limited partners are not liable for any additional
    payment beyond their cash investment for their Units,
    nor are they subject to any further assessment.
    The offering memorandum also included a tax opinion prepared
    by the law firm of Boylan & Evans concerning the tax issues
    involved in the Plastics Recycling program.    William A. Boylan
    and John D. Evans were formerly partners at Windels, Marx, Davies
    & Ives before leaving in 1982 and forming their own law firm.
    The opinion letter was addressed to Foam’s general partner and
    stated that “this letter is intended for your own individual
    guidance and for the purpose of assisting prospective purchasers
    and their tax advisors in making their own analysis, and no
    prospective purchaser is entitled to rely upon this letter.”     The
    offering memorandum also emphasized that the opinion provided by
    Boylan & Evans was for the general partner’s individual guidance
    and that prospective purchasers were not permitted to rely upon
    the advice in the opinion.
    The opinion expressly warned that the investment and energy
    tax credits available to limited partners would be reduced or
    - 8 -
    eliminated if the partnership could not demonstrate that the
    price paid for the recyclers approximated their fair market
    value.   The opinion did not purport to rely on any independent
    confirmation of the fair market value of the recyclers.   Rather,
    the opinion clearly relied on Stanley Ulanoff’s (Ulanoff)
    conclusion that the purchase price to be paid by F&G was fair and
    reasonable.   The opinion also relied on the representations of PI
    and other entities involved in the transactions that “the prices
    paid by ECI and by F&G and the terms of the Lease were negotiated
    at arm’s length” to reach the conclusion that “the basis to the
    Partnership upon which the aggregate investment and energy tax
    credits are to be computed is the price paid by F&G for the
    Sentinel Recyclers”.
    Also included in the offering memorandum were the reports of
    two “F&G Evaluators”, Samuel Z. Burstein (Burstein) and Ulanoff.
    Burstein was a professor of mathematics at New York University.
    Burstein’s report concluded that the recyclers were capable of
    continuous recycling.   The report also concluded that the
    recycling system would yield a material having commercial value.
    At the time Ulanoff prepared his report, he was a professor
    of marketing at Baruch College and also the author of numerous
    books on technical and marketing subjects.   Ulanoff’s report
    concluded that the price paid by F&G for the recyclers, the rent
    paid by Foam, and the joint venture profits were all fair and
    - 9 -
    reasonable.   Both Burstein and Ulanoff held investments in
    plastics recycling transactions.    The offering memorandum
    disclosed that Burstein was a client and business associate of
    PI’s corporate counsel.
    Petitioner is an attorney who practiced real estate law in a
    New York firm during the year in issue.    During the course of a
    real estate transaction in 1979, petitioner was impressed with
    his client’s financial adviser, Harris W. Freedman (Freedman).
    After the real estate transaction was completed, petitioner
    retained Freedman’s accounting firm, H.W. Freedman & Co., to
    prepare his annual tax returns.
    In addition to being the named partner in an accounting
    firm, Freedman was the president of F&G.    In 1982, Freedman sent
    petitioner a private placement memorandum for Foam.    Petitioner
    has no education or work experience in plastics recycling or
    plastics materials.    Petitioner discussed the investment with
    Freedman.    He read the offering memorandum and reviewed it with
    Jake Jacobson (Jacobson), his tax return preparer from H.W.
    Freedman & Co.    He also discussed the transaction with one of the
    associates in the tax department of petitioner’s law firm.    The
    associate told petitioner that he “might have a supportable tax
    position”.
    After reviewing the offering memorandum with petitioner,
    Jacobson came to petitioner’s office and told him that he had
    - 10 -
    personally visited the Sentinel facility and had spoken with the
    president of PI.    Jacobson told petitioner that it was a viable
    investment.   Petitioner then purchased a $12,500 partnership
    interest in Foam.
    On his 1982 Federal income tax return, petitioner claimed a
    loss of $10,101 as his distributive share of the partnership’s
    reported loss for 1982.   He also claimed a regular investment
    credit and an energy investment credit in the aggregate amount of
    $16,669.   Thus, the tax benefits petitioner claimed for his
    initial year of investment in the Partnership exceeded his
    $12,500 investment.   In 1986 petitioner filed an amended Federal
    income tax return for 1982.    On the amended return petitioner
    deducted his $12,500 investment in Foam and reversed the credits
    and net loss from the Partnership he claimed on his original 1982
    return.
    Foam was a so-called TEFRA partnership subject to the
    unified partnership audit and litigation procedures set forth in
    sections 6221 through 6233.    See Tax Equity and Fiscal
    Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),
    96 Stat. 648.   On December 21, 1989, a notice of final
    partnership administrative adjustment (FPAA) with respect to
    Foam’s 1982 tax year was issued to petitioner and to Richard
    Roberts, Foam’s general partner and tax matters partner.     The
    FPAA advised petitioner of adjustments to the 1982 Form 1065,
    - 11 -
    Partnership Return of Income, filed by Foam.   The FPAA disallowed
    all deductions and credits claimed by Foam in connection with its
    plastics recycling activity.
    On October 25, 1999, respondent issued a notice of
    deficiency to petitioner for additions to tax for his 1982
    taxable year.   The additions relate to the deductions and credits
    petitioner claimed on his original 1982 return with respect to
    his investment in Foam.
    Discussion
    We have decided many Plastics Recycling cases.   Most of
    those cases, like the present case, have presented issues
    regarding additions to tax for negligence.   See, e.g., West v.
    Commissioner, T.C. Memo. 2000-389; Barber v. Commissioner, T.C.
    Memo. 2000-372; Barlow v. Commissioner, T.C. Memo. 2000-339;
    Carroll v. Commissioner, T.C. Memo. 2000-184; Ulanoff v.
    Commissioner, T.C. Memo. 1999-170; Greene v. Commissioner, T.C.
    Memo. 1997-296; Kaliban v. Commissioner, T.C. Memo. 1997-271;
    Sann v. Commissioner, T.C. Memo. 1997-259 n.13 (and cases cited
    therein), affd. sub nom. Addington v. Commissioner, 
    205 F.3d 54
    (2d Cir. 2000).   In all but a few of those cases, we found the
    taxpayers liable for the additions to tax for negligence.
    In Provizer v. Commissioner, T.C. Memo. 1992-177, the test
    case for the Plastics Recycling group of cases, this Court:     (1)
    Found that each recycler had a fair market value of not more than
    - 12 -
    $50,000; (2) held that the transaction, which was virtually
    identical to the transaction in the present case, was a sham
    because it lacked economic substance and a business purpose; (3)
    sustained the additions to tax for negligence under section
    6653(a)(1) and (2); (4) sustained the addition to tax for
    valuation overstatement under section 6659 because the
    underpayment of taxes was directly related to the overvaluation
    of the recyclers; and (5) held that the partnership losses and
    tax credits claimed with respect to the plastics recycling
    partnership at issue were attributable to tax-motivated
    transactions within the meaning of section 6621(c).   We also
    found that other recyclers were commercially available during the
    years in issue.   
    Id. In this
    case, respondent determined that petitioner is
    liable for additions to tax for negligence under section
    6653(a)(1) and (2) with respect to underpayments of tax
    attributable to petitioner’s investment in Foam.   Section
    6653(a)(1) imposes an addition to tax equal to 5 percent of the
    underpayment if any part of an underpayment of tax is due to
    negligence or intentional disregard of rules or regulations.    An
    additional amount is added to the tax under section 6653(a)(2) in
    an amount equal to 50 percent of the interest payable with
    respect to the portion of the underpayment attributable to
    negligence.
    - 13 -
    Petitioner has the burden of proving that he is not liable
    for the addition to tax.    Addington v. 
    Commissioner, supra
    at 58;
    Goldman v. Commissioner, 
    39 F.3d 402
    , 407 (2d Cir. 1994), affg.
    T.C. Memo. 1993-480; Bixby v. Commissioner, 
    58 T.C. 757
    , 791-792
    (1972).   See generally Rule 142(a); Welch v. Helvering, 
    290 U.S. 111
    , 115 (1933).4
    Negligence is defined as the failure to exercise the due
    care that a reasonable and ordinarily prudent person would
    exercise under the circumstances.    Neely v. Commissioner, 
    85 T.C. 934
    , 947 (1985).    The pertinent question is whether a particular
    taxpayer’s actions are reasonable in light of the taxpayer’s
    experience, the nature of the investment, and the taxpayer’s
    actions in connection with the transaction.     Henry Schwartz Corp.
    v. Commissioner, 
    60 T.C. 728
    , 740 (1973).     The determination of
    negligence is highly factual.    “When considering the negligence
    addition, we evaluate the particular facts of each case, judging
    the relative sophistication of the taxpayers as well as the
    manner in which the taxpayers approached their investment.”
    Turner v. Commissioner, T.C. Memo. 1995-363.
    Petitioner accepts the finding of the Court in Provizer v.
    
    Commissioner, supra
    , that the Sentinel EPE Recyclers had a
    4
    Cf. sec. 7491(c), effective for court proceedings arising
    in connection with examinations commencing after July 22, 1998.
    Petitioner does not contend that his examination commenced after
    July 22, 1998, or that sec. 7491 is applicable to his case.
    - 14 -
    maximum value of $50,000 each.    Petitioner, nevertheless,
    contends that he was reasonable in claiming deductions and
    credits with respect to the partnership on his 1982 Federal
    income tax return based upon each recycler's having a value of
    $1,162,667.   To support this contention petitioner argues that he
    discussed the investment with his advisers and reviewed the
    offering memorandum.   He alleges that his investigatory actions
    were commensurate with the size of his investment.
    Under some circumstances a taxpayer may avoid liability for
    the additions to tax under section 6653(a)(1) and (2) if
    reasonable reliance on a competent professional adviser is shown.
    United States v. Boyle, 
    469 U.S. 241
    , 250-251 (1985); Freytag v.
    Commissioner, 
    89 T.C. 849
    , 888 (1987), affd. 
    904 F.2d 1011
    (5th
    Cir. 1990), affd. 
    501 U.S. 868
    (1991).    Reliance on professional
    advice, standing alone, is not an absolute defense to negligence,
    but rather a factor to be considered.    Freytag v. 
    Commissioner, supra
    .    In order for reliance on professional advice to excuse a
    taxpayer from negligence, the taxpayer must show that the
    professional had the requisite expertise, as well as knowledge of
    the pertinent facts, to provide informed advice on the subject
    matter.    David v. Commissioner, 
    43 F.3d 788
    , 789-790 (2d Cir.
    1995), affg. T.C. Memo. 1993-621; Goldman v. 
    Commissioner, supra
    ;
    Freytag v. 
    Commissioner, supra
    .
    - 15 -
    Reliance on representations by insiders or promoters, or on
    offering materials has been held an inadequate defense to
    negligence.    Goldman v. 
    Commissioner, supra
    ; LaVerne v.
    Commissioner, 
    94 T.C. 637
    , 652-653 (1990), affd. without
    published opinion 
    956 F.2d 274
    (9th Cir. 1992), affd. without
    published opinion sub nom. Cowles v. Commissioner, 
    949 F.2d 401
    (10th Cir. 1991).    Advice from such individuals “is better
    classified as sales promotion.”    Vojticek v. Commissioner, T.C.
    Memo. 1995-444.    Pleas of reliance also have been rejected when
    neither the taxpayer nor the advisers purportedly relied on by
    the taxpayer knew anything about the nontax business aspects of
    the contemplated venture.    David v. 
    Commissioner, supra
    ; Freytag
    v. 
    Commissioner, supra
    .
    Petitioner claims that he reviewed the offering memorandum
    and its accompanying materials and discussed the partnership
    investment with Freedman, Jacobson, and an associate in his law
    firm.    Petitioner’s purported reliance on these individuals and
    on the materials in the offering memorandum, however, does not
    relieve him of liability for the additions to tax for negligence.
    The offering memorandum itself, especially the numerous
    warnings and discussions of tax benefits and risk of audit,
    should have alerted a prudent and reasonable investor to the
    questionable nature of the promised deductions and credits.    See
    Collins v. Commissioner, 
    857 F.2d 1383
    , 1386 (9th Cir. 1988),
    - 16 -
    affg. Dister v. Commissioner, T.C. Memo. 1987-217; Sacks v.
    Commissioner, T.C. Memo. 1994-217, affd. 
    82 F.3d 918
    (9th Cir.
    1996).   The total of investment and energy tax credits ostensibly
    generated by the partnership and claimed by petitioner was almost
    1-1/2 times his cash investment.   In addition, petitioner claimed
    over $10,000 as a partnership loss.     Consequently, like the
    taxpayers in Provizer v. Commissioner, T.C. Memo. 1992-177,
    “except for a few weeks at the beginning, [petitioner] never had
    any money in the * * * [partnership].”     The disproportionately
    large tax benefits claimed on petitioner’s Federal income tax
    return, relative to the dollar amount invested, should have
    alerted petitioner to the need for further investigation of the
    partnership transactions.
    Any reliance petitioner may have placed on the materials in
    the offering memorandum was unreasonable in light of the
    memorandum’s specific warnings that potential investors should
    not rely on the statements or opinions contained in it and that
    they should seek independent advice.     See Collins v.
    
    Commissioner, supra
    at 1386.   The tax opinion letter prepared by
    Boylan & Evans included with the offering memorandum also
    expressly cautioned prospective investors such as petitioner not
    to rely upon the letter.
    Moreover, the tax opinion made clear that no independent
    evaluation of the transactions involved in this case was
    - 17 -
    conducted.   The opinion indicated that Boylan & Evans, in
    expressing its opinion, relied on the statements of the general
    partner and “other statements of fact and opinion furnished to us
    by persons familiar with the transactions described in the
    Memorandum.”   Boylan & Evans’s conclusion about the fair market
    value of the recyclers clearly was based on the assumption that
    the parties to the transactions had negotiated prices at arm’s
    length.   In light of the close relationships existing among the
    parties to the transactions and the enormous price paid for the
    recyclers, petitioner should have questioned whether the prices
    were in fact negotiated at arm’s length.   Under these
    circumstances, petitioner may not claim that he reasonably and in
    good faith relied on Boylan & Evans’s tax opinion.
    Petitioner’s contention that he reasonably relied on the
    expert opinions of Ulanoff and Burstein included with the
    offering memorandum also is unjustified.   Both Ulanoff and
    Burstein owned an interest in more than one partnership which
    owned Sentinel Recyclers as part of the plastics recycling
    program; thus their conclusions were unreliable.   See Provizer v.
    
    Commissioner, supra
    .   Moreover, Ulanoff’s report contained no
    elaboration about his basis for concluding that the price to be
    paid for the recyclers by F&G and the rent to be paid by the
    partnership were fair and reasonable.   Given the well-disclosed
    fact that the investment and energy tax credits generated by the
    - 18 -
    partnership were dependent on the fair market value of the
    recyclers, petitioner should have made inquiries into the value
    of the recyclers rather than merely relying on unsubstantiated
    conclusions.
    Petitioner does not suggest that any of the individuals with
    whom he discussed the partnership had any expertise in plastics
    or the plastics recycling industry.    The expertise of both
    Jacobson and petitioner’s law firm associate is in taxation.
    Nothing in the record suggests petitioner’s law firm associate
    consulted with anyone who had any expertise in plastics or
    investigated the partnership beyond looking at materials in the
    offering memorandum.   The associate’s advice did not go any
    further than indicating that the partnership “might have a
    supportable tax position” if the facts and circumstances proved
    to be as represented in the offering memorandum.    Although
    Jacobson supposedly visited the Sentinel facility and concluded
    that Foam was a viable investment, petitioner has presented no
    evidence that Jacobson had any basis from which to draw such a
    conclusion.
    Freedman’s experience with leveraged leasing does not make
    him an expert on plastics.   Further, Freedman’s position as an
    investor in plastics recycling transactions and as a shareholder
    and president of F&G made him an interested party in the
    investment at issue.   The fact that Freedman introduced the
    - 19 -
    partnership investment to petitioner should have put petitioner
    on guard that Freedman was engaged in selling rather than acting
    as an independent adviser.    “It is unreasonable for taxpayers to
    rely on the advice of someone who they know has a conflict of
    interest.”    Addington v. 
    Commissioner, 205 F.3d at 59
    ; see also
    Goldman v. 
    Commissioner, 39 F.3d at 408
    ; LaVerne v.
    Commissioner, 
    94 T.C. 652
    .
    Likewise, Jacobson’s affiliation with Freedman should have
    made petitioner wary of his recommendation.    Jacobson was
    employed by Freedman’s accounting firm, H.W. Freedman & Co.
    H.W. Freedman & Co. prepared the tax returns for ECI, F&G, and
    partnerships engaged in plastics recycling transactions.      See
    Provizer v. 
    Commissioner, supra
    .    Freedman was also named in the
    offering memorandum as president of F&G, lessors of the
    recyclers.    Petitioner acknowledged at trial that Jacobson “was
    more heavily involved in the investment than [petitioner]
    realized”.    Petitioner should have examined Jacobson’s motives
    for recommending the investment.    As a real estate attorney,
    petitioner should have known to exercise caution in relying upon
    his advice.
    Petitioner’s testimony suggests that in investing in the
    partnership he never had a profit motive beyond anticipated tax
    savings.   When asked at trial whether he expected that he would
    receive a positive cashflow from his investment in the
    - 20 -
    partnership, petitioner responded:      “Well, I thought there might
    be a residual value, but obviously the tax credits were the main
    feature”.    He explained that the residual value he referred to
    was the remaining value of the recyclers at the end of the
    partnership’s lease.    Yet the tax opinion letter stated that
    “the Partnership does not have an option to purchase the
    Sentinel Recyclers even at fair market value, and any residual
    value of the Sentinel Recyclers will inure solely to the benefit
    of F&G.”    Thus, the partnership had nothing to gain from the
    residual value of the recyclers at the end of its lease.
    Upon consideration of the entire record, we hold that
    petitioner did not exercise due care in claiming substantial tax
    credits and partnership losses.    It was not reasonable for
    petitioner to rely on the offering memorandum, the expert
    opinions contained therein, promoters, insiders to the
    transaction, or his law firm associate.     Accordingly, petitioner
    is liable for the negligence additions to tax under section
    6653(a)(1) and (2).
    To reflect the foregoing,
    Decision will be entered
    for respondent.