No Reasonable Reliance on Attorney, Accountant; Penalty Sustained (RB-1 Investment Partners, TCM)

A partnership had no reasonable reliance on its attorney or accountant. Therefore, it was liable for an accuracy-related penalty.


The partnership participated in a Son-of-BOSS deal. The deal manufactured tax losses to offset the partners’ gains from the sale of their family concrete business. However, the IRS determined that the partnership was a sham.

The partnership conceded the IRS’s adjustments. In addition, the parties agreed at trial that the facts supported a 40-percent gross-valuation misstatement. However, the partnership argued that the penalty should not apply because it relied in good faith on professional advice.

No Reasonable Reliance 

However, the partnership had no reasonable reliance on professional advice. It could not rely on the law firm’s advice because it was the tax shelter promoter. Moreover, the partnership knew, or should have known, that the law firm was selling the tax shelter.

Also, the partnership could not rely on the accounting firm because it did not give any advice on the deal. The accounting firm’s engagement letter stated that it would rely on the law firm’s opinion and guidance when preparing the return. And, In fact, the partnership return filed the return only after the law firm approved it. Further, the partnership never expected the accounting firm to provide a separate opinion. Therefore, only the law firm provided professional advice and the partnership could not meet the reasonable-cause-and-good-faith defense by relying on the advice of a promoter.

RB-1 Investment Partners, Dec. 61,174(M)


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All stories by: CCHTaxGroup