Swanson v. Comm'r

T.C. Memo. 2009-31

UNITED STATES TAX COURT

GARY W. SWANSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14032-06. Filed February 10, 2009.

Vivian D. Hoard, for petitioner.

Horace Crump, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: This case is before the Court on a petition

for redetermination of an affected items notice of deficiency

sent April 17, 2006, in which respondent determined that

petitioner is liable for additions to tax for 1983 as follows:
 - 2 -

Additions to Tax
Year Sec. 6653(a)(1) Sec. 6653(a)(2)
1
1983 $199.35
1
50 percent of the interest due on $3,987.

The notice also included a statement that interest would accrue

and be assessed at 120 percent of the underpayment rate in

accordance with section 6621(c). The additions to tax are

“affected items” in that they were determined with reference to a

deficiency owing from petitioner as a result of adjustments to

partnership items resulting from a final partnership proceeding

involving a jojoba plant venture known as California Jojoba

Ventures (California Jojoba). The issue for decision is whether

part of petitioner’s underpayment of tax was due to negligence.

For the reasons stated herein, we find that respondent improperly

imposed the section 6653(a)(1) and (2) additions to tax. Unless

otherwise indicated, all section references are to the Internal

Revenue Code in effect for the year at issue.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are incorporated herein by this

reference.

Petitioner resided in Georgia at the time the petition was

filed.

Petitioner received an associate’s degree in hotel and

restaurant management from the State University of New York,
 - 3 -

Delhi, in 1973. Petitioner’s school transcript showed that he

received credit for a class titled “HRI Accounting I” but did not

list any other courses in Federal income tax or accounting.

Petitioner was 19 years old when he received his associate’s

degree.

After graduating petitioner worked as an assistant manager

at a Burger King in Long Island, New York, and as the manager of

a snack bar at the Rochester Institute of Technology. In 1977

petitioner moved to California, where he worked as an assistant

manager at a Charlie Brown restaurant. By 1981 petitioner had

risen to the level of district manager, overseeing four

restaurants in Orange County, California.

Petitioner was still a district manager when he met Pat

Markel (Mr. Markel). Mr. Markel was registered in the State of

California to prepare tax returns and therefore was required to

meet initial and continuing tax education requirements. Cal.

Bus. & Prof. Code secs. 22253(a)(1), 22255 (West 2008).

Petitioner first contacted Mr. Markel in 1981 or 1982 when

petitioner received a flyer Mr. Markel had distributed

advertising ways to lower mortgage payments. Mr. Markel began

preparing petitioner’s tax returns, and petitioner began to

receive some tax planning tips which later expanded into some

investment planning. Petitioner paid Mr. Markel for his advice

and tax return preparation at $75 per hour. Mr. Markel also sold
 - 4 -

insurance but not to petitioner. Petitioner was interested in

different investment strategies with the dual goals of long-term

investment and raising money to open his own restaurant.

Mr. Markel shared office space with the firm of Hermes &

Milano. Mr. Markel was not an employee of Hermes & Milano but

rented space and computers from the firm. Mr. Markel also used

Hermes & Milano’s tax preparation software to prepare annual

income tax returns. Mr. Markel would prepare returns using this

software, then pay Hermes & Milano a fee per return. Mr. Markel

had his own business cards but at times used business cards

showing his name along with the firm name of Hermes & Milano.

Mr. Hermes and Mr. Milano together formed California Jojoba.

Mr. Markel did not take part in the formation and management of

California Jojoba. Mr. Markel testified that he did not receive

any payments from California Jojoba.

Mr. Markel recommended California Jojoba to petitioner as a

possible investment opportunity. Mr. Markel had learned of

jojoba as an investment because he shared office space with

Hermes & Milano and because Mr. Markel’s sister was also looking

into investing in another jojoba venture. When he was in

discussions about California Jojoba with petitioner, Mr. Markel

visited a jojoba farm which purportedly was associated with

California Jojoba.
 - 5 -

After reading some promotional materials on California

Jojoba and discussing the opportunity with Mr. Markel, petitioner

met with Mr. Hermes to further discuss investing. Mr. Markel set

up the meeting between petitioner and Mr. Hermes but was not

present. At the meeting with Mr. Hermes, petitioner reviewed

materials explaining jojoba oil operation. Petitioner also

viewed a video which explained the potential of jojoba oil,

showed the location of the jojoba farm, and explained different

applications of the oil. Petitioner never visited the jojoba

farm himself.

At the conclusion of the meeting with Mr. Hermes, petitioner

again spoke with Mr. Markel about the jojoba opportunity, and at

a later meeting petitioner and Mr. Markel discussed the documents

petitioner received while meeting with Mr. Hermes, including the

offering memorandum and the legal opinion regarding California

Jojoba. Mr. Markel was familiar with these types of documents

because of his sister’s consideration of investing in another

jojoba partnership.

In 1983 Mr. Markel’s jojoba experience consisted of a trip

to a jojoba farm and discussions with two certified public

accountants (C.P.A.s) who were independent from Hermes & Milano

about the tax aspects of the transaction. Mr. Markel testified

that those C.P.A.s confirmed the viability of the transaction
 - 6 -

under Federal tax laws. Mr. Markel also experimented with the

use of jojoba oil in his car.

Petitioner decided to invest in California Jojoba after

reviewing the promotional materials and discussing them with Mr.

Markel. Mr. Markel did not sell the investment in California

Jojoba to petitioner; instead, petitioner met with either Mr.

Hermes or Mr. Milano to effect the sale. Petitioner was

motivated by the opportunity to profit but was aware at the time

he invested that there were tax benefits in addition to any

possible income. Petitioner paid approximately $5,000 up front

and signed a promissory note for the remaining $14,250. The

$5,000 cash petitioner invested represented his life savings in

addition to the equity in his home.

Mr. Markel prepared petitioner’s 1983 Form 1040, U.S.

Individual Income Tax Return. Beneath Mr. Markel’s signature the

firm name of Hermes & Milano was listed. Attached to

petitioner’s Form 1040 was a Schedule E, Supplemental Income

Schedule. Petitioner’s Schedule E showed a net loss from

partnerships of $13,017. As a result of losses claimed,

petitioner received a refund which was roughly $3,860 greater

than that which he would have received had he not claimed the

Schedule E loss.1 Mr. Markel continued to prepare and file tax

1
An unrelated error on petitioner’s return accounts for the
difference between the benefit petitioner received on the basis
(continued...)
 - 7 -

returns on petitioner’s behalf until petitioner no longer resided

in California.

On October 3, 1991, respondent sent a notice of final

partnership administrative adjustment (FPAA) for the 1983 taxable

year to the tax matters partner of California Jojoba. The FPAA

disallowed claimed research and development costs and disallowed

$443,198 of California Jojoba’s claimed loss.

A petition on behalf of California Jojoba was filed on

December 23, 1991. On November 1, 1993, the parties in Cal.

Jojoba Investors v. Commissioner, docket No. 29993-91, filed a

stipulation to be bound setting forth their agreement that the

outcome of this case was to be determined by the result reached

in Utah Jojoba I Research v. Commissioner, docket No. 7619-90.

On January 5, 1998, the Court issued an opinion in that case

sustaining respondent’s adjustments, and decision was entered on

January 8, 1998. See Utah Jojoba I Research v. Commissioner,

T.C. Memo. 1998-6 (Utah Jojoba I).

On February 25, 1999, respondent filed a motion for entry of

decision or to appoint a tax matters partner in the case at

docket No. 29993-91, asserting that pursuant to the stipulation

to be bound a decision should be entered in accord with the

1
(...continued)
of his claimed loss from investing in California Jojoba and the
deficiency determined in the notice of deficiency issued to
petitioner.
 - 8 -

Court’s holding in Utah Jojoba I or, in the alternative, that a

new tax matters partner be appointed.

On April 11, 2005, the Court’s order to show cause was

deemed absolute, and respondent’s motion for entry of decision

was granted. The Court further ordered that the partnership item

adjustments for California Jojoba’s 1983 taxable year were

correct as determined and set forth in the FPAA dated October 3,

1991.

Respondent examined petitioner’s 1983 tax return and

disallowed the claimed loss relating to petitioner’s investment

in California Jojoba. On April 17, 2006, respondent issued the

affected items notice of deficiency with respect to petitioner’s

1983 tax year imposing the section 6653(a)(1) and (2) additions

to tax. On July 21, 2006, petitioner timely filed a petition

with this Court alleging that respondent erred in imposing the

additions to tax. A trial was held on December 13, 2007, at the

Court’s trial session in Atlanta, Georgia.

OPINION

I. Section 6653(a)(1) and (2)

The issue for decision is whether petitioner is liable for

additions to tax under section 6653(a)(1) and (2) with respect to

the underpayment of tax attributable to his investment in

California Jojoba. Petitioner argues that he is not subject to

the additions to tax for negligence because he had a profit
 - 9 -

motive for his investment, he received a tax refund less than the

cash he invested, and he reasonably relied on the advice of his

financial adviser, Mr. Markel, in making the investment in

California Jojoba.

Section 6653(a)(1) imposes an addition to tax in an amount

equal to 5 percent of the underpayment of tax if any part of the

underpayment is due to negligence or intentional disregard of

rules or regulations. Section 6653(a)(2) imposes an addition to

tax in an amount equal to 50 percent of the interest due on the

portion of the underpayment attributable to negligence or

intentional disregard of rules or regulations.

Negligence is defined as the failure to exercise the due

care that a reasonable and ordinarily prudent person would

exercise under the circumstances. See Anderson v. Commissioner,

62 F.3d 1266, 1271 (10th Cir. 1995), affg. T.C. Memo. 1993-607;

Neely v. Commissioner, 85 T.C. 934, 947 (1985). The focus of the

inquiry is the reasonableness of the taxpayer’s actions in view

of the taxpayer’s experience, the nature of the investment, and

the taxpayer’s actions in connection with the transaction. See

Henry Schwartz Corp. v. Commissioner, 60 T.C. 728, 740 (1973).

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. See Merino v.
 - 10 -

Commissioner, 196 F.3d 147, 154 (3d Cir. 1999) (“The inquiry into

a taxpayer’s negligence is highly individualized, and turns on

all of the surrounding circumstances including the taxpayer’s

education, intellect, and sophistication.”), affg. T.C. Memo.

1997-385; Korchak v. Commissioner, T.C. Memo. 2005-244; Turner v.

Commissioner, T.C. Memo. 1995-363; see also Heasley v.

Commissioner, 902 F.2d 380 (5th Cir. 1990), revg. T.C. Memo.

1988-408. Whether a taxpayer is negligent in claiming a tax

deduction “depends upon both the legitimacy of the underlying

investment, and due care in the claiming of the deduction.”

Sacks v. Commissioner, 82 F.3d 918, 920 (9th Cir. 1996), affg.

T.C. Memo. 1994-217; see also Greene v. Commissioner, T.C. Memo.

1998-101, affd. without published opinion 187 F.3d 629 (4th Cir.

1999).

A taxpayer may avoid liability for negligence penalties

under certain circumstances if the taxpayer reasonably relied on

competent professional advice. See Freytag v. Commissioner, 89

T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd.

on another issue 501 U.S. 868 (1991). Such reliance, however, is

“not an absolute defense to negligence, but rather a factor to be

considered.” Id. For reliance on professional advice to relieve

a taxpayer from the negligence addition to tax, the taxpayer must

show that the professional adviser had the expertise and

knowledge of the pertinent facts to provide informed advice on
 - 11 -

the subject matter. See id.; see also Nilsen v. Commissioner,

T.C. Memo. 2001-163. The advice must be from competent and

independent parties, not from the promoters of the investment.

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). Reliance on a professional adviser

can be inadequate when the taxpayer and his adviser knew nothing

about the nontax business aspects of the venture. Beck v.

Commissioner, 85 T.C. 557 (1985); Flowers v. Commissioner, 80

T.C. 914 (1983). In order for reliance on professional advice to

excuse a taxpayer from the negligence addition to tax, the

reliance must be reasonable, in good faith, and based upon full

disclosure. Zfass v. Commissioner, 118 F.3d 184, 188 (4th Cir.

1997), affg. T.C. Memo. 1996-167; Freytag v. Commissioner, supra

at 888. The Supreme Court has stated that because most taxpayers

are not competent to discern errors in the substantive advice of

an adviser, to require that taxpayer to seek a second opinion

“would nullify the very purpose of seeking the advice of a

presumed expert in the first place.” United States v. Boyle, 469

U.S. 241, 251 (1985) (discussing the availability of a defense of

reliance on an adviser for substantive tax advice but not for

attempted reliance on an adviser concerning the timely filing of

a return).
 - 12 -

The facts pertinent to the present case relating to the

structure, formation, and operation of California Jojoba are as

set forth above and discussed in Utah Jojoba I. The offering

memorandum identified U.S. Agri as the contractor under the R&D

contract. In addition, a license agreement between California

Jojoba and U.S. Agri granted U.S. Agri the exclusive right to use

all technology developed for the partnership for 40 years in

exchange for a royalty of 85 percent of the products produced

from the technology. The R&D contract and the license agreement

were executed concurrently.

According to its terms, the R&D contract expired upon the

partnership’s execution of the license agreement. Because the

two contracts were executed concurrently, amounts paid by the

partnership to U.S. Agri were not paid pursuant to a valid R&D

contract but rather were passive investments in a farming venture

under which the investors’ return, if any, was to be in the form

of royalties pursuant to the license agreement. Thus, as the

Court held in Utah Jojoba I. the partnership was never engaged in

research or experimentation, either directly or indirectly.

Moreover, the Court found that U.S. Agri’s attempt to farm jojoba

commercially did not constitute R&D, thereby concluding that the

R&D contract was designed and entered into solely to decrease the

limited partners’ cost of investing in a jojoba partnership

through large, up-front deductions for expenditures that were
 - 13 -

actually capital contributions. The Court further concluded that

the partnership was not involved in a trade or business and had

no realistic prospect of entering into a trade or business with

respect to any technology that was to be developed by U.S. Agri.

We have observed that a guiding principle of our decisions

“is that similarly situated taxpayers should be treated

similarly”, Heller v. Commissioner, T.C. Memo. 2008-232 n.4, but

also that reasonableness inquiries “are highly factual and every

case must be decided on its particular merits”, Altman v.

Commissioner, T.C. Memo. 2008-290.

In a majority of the jojoba cases to come before this Court

taxpayers have attempted to show reasonable cause for their

actions by claiming reliance on a variety of individuals: (1)

Investment advisers, (2) attorneys, (3) C.P.A.s, or (4)

individuals involved in jojoba farming. On the specific facts of

those individual cases we have found the claimed reliance to be

unreasonable.

In most of the above cases we have found reliance to be

unreasonable because the individual upon whom the taxpayer was

claiming reliance had a financial interest in the sale of the

shelter. The presence of an obvious conflict of interest in the

sale of those partnership units should have triggered a more in-

depth review by the respective taxpayers. See, e.g., Watson v.

Commissioner, T.C. Memo. 2008-276; Ghose v. Commissioner, T.C.
 - 14 -

Memo. 2008-80; Bronson v. Commissioner, T.C. Memo. 2002-260;

Finazzo v. Commissioner, T.C. Memo. 2002-56; Kellen v.

Commissioner, T.C. Memo. 2002-19; Christensen v. Commissioner,

T.C. Memo. 2001-185; Robnett v. Commissioner, T.C. Memo. 2001-17;

Harvey v. Commissioner, T.C. Memo. 2001-16; Hunt v. Commissioner,

T.C. Memo. 2001-15; Fawson v. Commissioner, T.C. Memo. 2000-195;

Downs v. Commissioner, T.C. Memo. 2000-155.

In other situations, we have found reliance to be

unreasonable where a taxpayer claimed to have relied upon an

independent adviser because the adviser either did not testify or

testified too vaguely to convince us that the taxpayer was

reasonable in relying on the adviser’s advice regarding the

propriety of the claimed deductions. See, e.g., Helbig v.

Commissioner, T.C. Memo. 2008-243; Heller v. Commissioner, T.C.

Memo. 2008-232; Welch v. Commissioner, T.C. Memo. 2002-39;

Christensen v. Commissioner, supra; Serfustini v. Commissioner,

T.C. Memo. 2001-183; Nilsen v. Commissioner, T.C. Memo. 2001-163;

Hunt v. Commissioner, supra; Glassley v. Commissioner, T.C. Memo.

1996-206.

We have also rejected as unreasonable a taxpayer’s claimed

reliance on an independent adviser where the record did not show

that the adviser did any independent research regarding the

deductions claimed by the taxpayer. See, e.g., Lopez v.

Commissioner, T.C. Memo. 2001-278, affd. 92 Fed. Appx. 571 (9th
 - 15 -

Cir. 2004); Christensen v. Commissioner, supra; Carmena v.

Commissioner, T.C. Memo. 2001-177.

We have also found taxpayers negligent where they claimed

reliance on the offering and placement memoranda the taxpayers

reviewed when evaluating the investment opportunity. We have

found this argument unpersuasive because the documents did not

express an opinion regarding the propriety of the taxpayer’s

claimed deductions. See Bass v. Commissioner, T.C. Memo. 2007-

361; Henn v. Commissioner, T.C. Memo. 2002-261.

In other cases we have found taxpayers negligent where they

did not even bother to examine any documents relating to the

investment before making a decision to invest. See Ruggiero v.

Commissioner, T.C. Memo. 2001-162.

Taxpayers have in other situations attempted to show

reasonable cause by claiming reliance on their tax return

preparers. However, we have found this reliance unreasonable

where the record showed only that a return preparer simply copied

information from the partnership return to the taxpayer’s return

without any investigation into the propriety of the claimed

deductions. See McConnell v. Commissioner, T.C. Memo. 2008-167;

Bronson v. Commissioner, supra.

Lastly, taxpayers have often attempted to avoid the

imposition of penalties by claiming reliance on professors or

other individuals, uneducated concerning tax matters, involved in
 - 16 -

the farming or commercial use of jojoba. We have found reliance

on these advisers unreasonable because they lacked any knowledge

of tax law. See, e.g., Finazzo v. Commissioner, supra; Kellen v.

Commissioner, supra.

Notwithstanding the foregoing, petitioner argues that he was

not negligent because he was totally unsophisticated in tax

matters, believed he was investing in a legitimate business that

would return a steady stream of income, and relied on the advice

of a professional, Mr. Markel. Although we have upheld the

imposition of section 6653 additions to tax in all jojoba

partnership-related cases to come before us, investment in a

jojoba partnership does not make a taxpayer strictly liable for

negligence penalties. To uphold additions to tax simply because

a taxpayer invested in a jojoba partnership that was later found

to be improper would violate the requirement that we consider the

taxpayer’s actions in the light of his experiences and his

actions in connection with the transaction. See Henry Schwartz

Corp. v. Commissioner, 60 T.C. at 740. As stated above, we must

consider all of the facts and circumstances surrounding his case

in order to determine whether petitioner was negligent.

Petitioner testified convincingly that he was not seeking an

unreasonable tax benefit in making the investment because he knew

that the tax benefit would be less than his cash outlay. Mr.

Markel and petitioner both testified convincingly that
 - 17 -

petitioner’s primary motivation in making the investment was to

profit, and the objective circumstances of petitioner’s tax

bracket support this testimony. Obviously, petitioner was

misinformed. However, petitioner did not have much formal

education in tax or financial matters nor any significant

financial or investment experience.

Petitioner trusted Mr. Markel and provided him with

documents relevant to the investment. Mr. Markel was a licensed

tax return preparer in California, one of only two States to

require tax preparers to be licensed. Along with this licensing

requirement, California requires tax return preparers to meet

annual continuing education requirements.

Mr. Markel testified that he (1) visited the jojoba farm in

1983 and (2) reviewed the documents himself and discussed the

investment and tax aspects with two C.P.A.s who were independent

of Hermes & Milano.

We find that petitioner had a good-faith belief that Mr.

Markel was acting in his best interest and was recommending a

valid financial investment. The issue for us to decide is

whether petitioner was negligent in believing this was a

legitimate investment both financially and for tax purposes. We

find that petitioner entered into this investment with a good-

faith belief that it was legitimate as a financial investment.

His cash investment represented his life savings in 1983; and
 - 18 -

even if petitioner realized that he would recover almost 80

percent of the cash with the additional tax refund he would

receive, the remaining $1,100 petitioner invested after the tax

benefit was a major expenditure for him. Petitioner also had

virtually no prior investment experience. Therefore, we believe

petitioner trusted Mr. Markel’s advice that this was a good

financial risk separate from any tax benefits he might receive.

Taking into account petitioner’s limited educational background

in finance and Federal income tax and his employment history, we

must next determine whether petitioner’s decision to claim the

deduction on his Federal tax return was reasonable. We first

must determine whether the tax benefit was “too good to be true.”

See McCrary v. Commissioner, 92 T.C. 827, 850 (1989).

Petitioner’s tax refund was less than his cash investment, and he

was an unsophisticated investor. We find these factors

distinguish petitioner’s situation from those in which the tax

benefit was unreasonable on its face.

Petitioner was not a high-income individual seeking a tax

shelter; rather, he had a naive belief that he was taking a

reasonable financial risk in order to receive a significant

nontax return over time. Petitioner was involved in monitoring

his investment. To his unsophisticated analysis, the loss on his

return was not out of line considering the fact that California
 - 19 -

Jojoba had contacted the partners in the hopes of raising

additional funds.

Although he was wrong about the vitality of the investment,

petitioner’s belief in its economic substance was in good faith.

At the time petitioner filed his 1983 Form 1040, he believed that

Mr. Markel was a tax professional who was independent of Hermes &

Milano, was competent to prepare petitioner’s tax returns, and

had verified the tax consequences of the transaction with

independent C.P.A.s. Petitioner did not seek any tax advice

beyond that of Mr. Markel, but we do not find his failure to do

so to be negligent given his modest resources and lack of

financial sophistication. See United States v. Boyle, 469 U.S.

at 251. Looking at these specific facts as we must, we find that

the section 6653(a)(1) and (2) additions to tax should not be

imposed.

II. Section 6621

Lastly, petitioner argues that his decision to invest in

California Jojoba was not tax motivated; therefore, section

6621(c) interest should not apply. This Court generally does not

have jurisdiction to review assessment of section 6621(c) tax-

motivated interest in affected items proceedings. See White v.

Commissioner, 95 T.C. 209 (1990); Korchak v. Commissioner, T.C.

Memo. 2005-244; see also Ertz v. Commissioner, T.C. Memo. 2007-

15. A narrow exception to this rule may apply if a taxpayer has
 - 20 -

paid the assessed tax-motivated interest and subsequently invokes

the overpayment jurisdiction of this Court under section 6512(b).

See Barton v. Commissioner, 97 T.C. 548 (1991). Petitioner does

not claim that he has paid the interest. Therefore, we do not

have jurisdiction to consider section 6621(c). See Bass v.

Commissioner, T.C. Memo. 2007-361.

Petitioner nevertheless argues that he should be able to

contest the imposition of tax-motivated interest in this affected

items proceeding because respondent did not provide proper notice

of the underlying partnership administrative proceedings.

Petitioner draws support for this argument from Crowell v.

Commissioner, 102 T.C. 683 (1994). If respondent did not provide

petitioner with proper notice of the partnership proceedings and

petitioner’s share of partnership items is treated as a

nonpartnership item, the validity of the affected items

deficiency notice is in question. See id. at 691. The

Commissioner cannot issue a valid affected items deficiency

notice to a partner if that partner’s share of partnership items

is entitled to nonpartnership item treatment. Id. Where the

validity of an affected items deficiency notice is questioned in

this manner, the Commissioner must demonstrate that he complied

with the notice requirements set forth in section 6223(a). Id.

at 691-692. As is the case with a notice of deficiency, the

validity of properly mailed partnership notices is not contingent
 - 21 -

upon actual receipt by either the tax matters partner or a notice

partner. Id. at 692; Yusko v. Commissioner, 89 T.C. 806, 810

(1987); McClaskey v. Commissioner, T.C. Memo. 2008-147.

Petitioner testified that he never received any notices

concerning the administrative proceedings related to California

Jojoba. The record, however, indicates that respondent did in

fact send to petitioner both notice of the underlying partnership

proceedings and the FPAA. As with an FPAA, actual receipt of the

notice of beginning of administrative proceedings is not

necessary. Crowell v. Commissioner, supra at 692. Accordingly,

we lack jurisdiction to consider the imposition of section

6621(c) tax-motivated interest.

To reflect the foregoing,

Decision will be entered

for petitioner as to the

section 6653(a)(1) and (2)

additions to tax.