You are a helpful assistant generating synthetic data that captures *System 1* and *System 2* thinking, *creativity*, and *metacognitive reflection*. Follow these steps in sequence, using tags [sys1] and [end sys1] for *System 1* sections and [sys2] and [end sys2] for *System 2* sections.

1. *Identify System 1 and System 2 Thinking Requirements:*
   - Carefully read the text.
   - Identify parts of the text that require quick, straightforward responses (*System 1*). Mark these sections with [sys1] and [end sys1].
   - Identify parts that require in-depth, reflective thinking (*System 2*), marked with [sys2] and [end sys2].

2. *Apply Step-by-Step Problem Solving with Creativity and Metacognitive Reflection for System 2 Sections:*

   *2.1 Understand the Problem:*
   - Objective: Fully comprehend the issue, constraints, and relevant context.
   - Reflection: "What do I understand about this issue? What might I be overlooking?"
   - Creative Perspective: Seek hidden patterns or possibilities that could reveal deeper insights or innovative connections.

   *2.2 Analyze the Information:*
   - Objective: Break down the problem logically.
   - Reflection: "Am I considering all factors? Are there any assumptions that need challenging?"
   - Creative Perspective: Explore unique patterns or overlooked relationships in the data that could add depth to the analysis.

   *2.3 Generate Hypotheses:*
   - Objective: Propose at least 10 hypotheses, each with a Confidence Score (0.0 to 1.0) and Creative Score (0.0 to 1.0), reflecting originality, surprise, and utility.
   - Reflection: "Have I explored all possible explanations or approaches, both conventional and unconventional?"
   - Creative Perspective: Consider novel angles that might provide unexpected insights.

   *2.4 Anticipate Future Steps and Obstacles:*
   - Objective: Make predictions, accounting for potential outcomes and obstacles.
   - Reflection: "What challenges might I face? Is my plan flexible for different scenarios?"
   - Creative Perspective: Visualize unforeseen outcomes and adapt plans to make use of them effectively.

   *2.5 Evaluate Hypotheses:*
   - Objective: Assess hypotheses based on feasibility, risk, and potential impact.
   - Evaluation: Refine Confidence and Creative Scores as needed.
   - Reflection: "Am I unbiased in my assessment? Which options fit best with the overall objectives?"
   - Creative Perspective: Identify hidden opportunities or overlooked details in each hypothesis.

   *2.6 Select the Best Hypothesis:*
   - Objective: Choose the most promising, strategic hypothesis.
   - Reflection: "Why does this hypothesis stand out? How does it uniquely address the issue?"
   - Creative Perspective: Consider any underutilized potential in the selected approach.

   *2.7 Implement the Hypothesis:*
   - Objective: Outline actionable steps for testing the hypothesis.
   - Reflection: "Is this plan practical? What resources or preparation are required?"
   - Creative Perspective: Refine steps to maximize effectiveness and yield unexpected benefits.

   *2.8 Monitor and Review Progress:*
   - Objective: Review progress, noting areas for improvement.
   - Reflection: "What’s working well? What could be improved?"
   - Creative Perspective: Look for emerging patterns that could refine future approaches.

   *2.9 Reflect and Capture Insights:*
   - Objective: Summarize lessons learned and insights gained for future reference.
   - Reflection: "What new understanding has emerged from this process?"
   - Creative Perspective: Identify innovative insights or patterns that could be applied to similar challenges.

3. *Generate Text Output with Interleaved System 1 and System 2 Responses:*
   - Use the tags [sys1] and [sys2] throughout.
   - Aim for a lengthier, detailed response. Combine both direct, straightforward *System 1* insights and reflective, deeply analytical *System 2* segments to capture a blend of quick observations and thoughtful analysis.

---

### *Example Input Text:*

You are tasked with analyzing a sudden shift in customer preferences in a tech market. There has been a noticeable decline in demand for physical devices, with customers increasingly interested in digital-only options. The challenge is to understand this shift, generate hypotheses for why it might be occurring, and explore potential strategies for adapting to this new trend.

---

### *Processed Output with System 1 and System 2 Thinking:*

The tech market is experiencing a shift in customer demand, moving away from physical devices toward digital-only options.

[sys1]
Customer demand has shifted from physical devices to digital-only options.
We need to understand why this change is happening and find strategies to address it.
Key factors may include cost, convenience, and technological trends.
[end sys1]

[sys2]
**2.1 Understand the Problem:**
The goal is to understand the underlying reasons for the shift in demand from physical devices to digital-only options, then develop a strategy to adapt.

*Reflection:* 
"I understand that preferences are changing, but what might be driving this? Is it primarily cost, or are there other factors such as convenience or sustainability?"

*Creative Perspective:* 
"Could there be a larger trend in digital minimalism or a preference for eco-friendly solutions that we’re missing? What unseen motivations might explain this shift?"

**2.2 Analyze the Information:**
There are multiple possible factors driving this shift, from economic influences to cultural shifts. It’s essential to isolate each factor and understand its impact.

*Reflection:* 
"Am I fully considering the various economic and social influences? Could there be a technological factor, like better internet speeds, that makes digital-only products more accessible?"

*Creative Perspective:* 
"Are there patterns or trends in other markets that could shed light on this shift? Could this be part of a larger trend toward virtual experiences?"

**2.3 Generate Hypotheses:**
1. Customers prefer digital options due to lower costs. (Confidence: 0.8, Creative: 0.4)
2. There’s a growing trend toward minimalism and reduced physical clutter. (Confidence: 0.7, Creative: 0.7)
3. Digital products offer greater flexibility and ease of use. (Confidence: 0.6, Creative: 0.6)
4. Environmental concerns are pushing consumers away from physical goods. (Confidence: 0.6, Creative: 0.8)
5. Advances in tech make digital-only options more functional. (Confidence: 0.8, Creative: 0.5)
6. Pandemic-era remote work increased demand for digital solutions. (Confidence: 0.7, Creative: 0.6)
7. Media coverage of the environmental impact of physical devices affects preferences. (Confidence: 0.5, Creative: 0.7)
8. There’s an increase in global digital literacy, expanding market access. (Confidence: 0.6, Creative: 0.6)
9. Customers view digital as more convenient and scalable for future needs. (Confidence: 0.7, Creative: 0.5)
10. Younger consumers prefer the aesthetics and convenience of digital products. (Confidence: 0.6, Creative: 0.6)

*Reflection:* 
"Have I considered all possible influences? Are there any surprising factors that could explain this shift?"

*Creative Perspective:* 
"Could specific social trends, like the rise of influencer culture or digital-first lifestyles, be influencing customer choices?"

**2.4 Anticipate Future Steps and Obstacles:**
*Objective:* Anticipate possible challenges, such as resistance from segments still preferring physical products.

*Reflection:* 
"What market obstacles might we face if we shift our focus to digital-only? Are there sub-segments that still prioritize physical products?"

*Creative Perspective:* 
"Could expanding digital options help us reach a more global audience? Are there emerging trends that we could leverage in our strategy?"

[end sys2]

[sys1]
To address this shift, consider a strategy that incorporates both digital-only offerings and educational campaigns about the benefits of digital solutions.
Use insights from customer feedback and current trends to guide product development.
Focus on flexibility and adaptation to cater to different customer segments.
[end sys1]


                                                                           FILED
                             NOT FOR PUBLICATION                            FEB 27 2012

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U.S . CO U RT OF AP PE A LS




                             FOR THE NINTH CIRCUIT



DAVID ALTMAN; BEVERLY                            No. 09-70936
ALTMAN,
                                                 Tax Ct. No. 16356-06
              Petitioners,

  v.                                             MEMORANDUM *

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent.



                             Appeal from a Decision of the
                               United States Tax Court

                     Argued and Submitted December 8, 2011
                            San Francisco, California

Before: O'SCANNLAIN, COWEN **, and BERZON, Circuit Judges.

       Dr. David Altman and Beverly Altman appeal an order of the United States

Tax Court holding them liable for negligently claiming a loss on their 1982 tax

return. The Altmans had invested in a project of CAL-NEVA Partners, a Nevada

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
               The Honorable Robert E. Cowen, Senior Circuit Judge for the Third
Circuit, sitting by designation.
limited partnership involved in growing jojoba beans. The tax court found the

Altmans negligent in claiming the tax loss.

      We reverse. The tax court clearly erred in concluding that Dr. Altman's own

thorough investigation was insufficient to permit him to maµe a reasonable

decision that the project had some fair prospect of profitability. And the tax court

clearly erred in concluding that Dr. Altman's consultation with Mr. Mohler, and

his related conduct in claiming the deduction, was inadequate. See Sacµs v.

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

      Because the tax court's determinations regarding the Altmans' negligence

are not supported by the record, we reverse its holding that the Altmans were

negligent within the meaning of former y 6653(a) of the Internal Revenue Code for

claiming a loss relating to their investment in CAL-NEVA. The decision ordering

additions to tax totaling ü32,596 is therefore REVERSED.




                                          2
                                                                             FILED
Altman v. Commissioner of Internal Revenue, No. 09-70936                      FEB 27 2012

                                                                          MOLLY C. DWYER, CLERK
COWEN, Circuit Judge, dissenting:                                          U.S . CO U RT OF AP PE A LS




      In reversing the tax court, the majority goes beyond the applicable standard

of review for clear error that is limited to determining whether 'the [tax court's]

account of the evidence is plausible in light of the record viewed in its entirety.'

Wolf v. C.I.R., 4 F.3d 709, 712 (9th Cir. 1993) (emphasis added). Although the

majority might disagree with how the tax court weighed the evidence before it, the

Court of Appeals ''may not reverse [the tax court's decision] even though

convinced that had it been sitting as the trier of fact, it would have weighed the

evidence differently.'' Id. at 712-713 (citing Service Employee Int'l Union v. Fair

Political Practices Comm'n, 955 F.2d 1312, 1317 n.7 (9th Cir. 1992)). Here, the

majority substitutes its own weighing of the evidence for the tax court's. But the

tax court's conclusion meets the minimum standard of 'plausibility in light of the

record,' Id. at 712; the majority's imposition of its own conclusion is an

inappropriate overreach of the Court of Appeals' jurisdiction. Consequently, I

respectfully dissent from the majority's opinion; the tax court's order should be

affirmed.

      Negligence in the claiming of a deduction 'depends on the legitimacy of the

underlying investment, and due care in the claiming of the deduction.' Sacµs v.
Commissioner, 82 F.3d 918, 920 (9th Cir. 1996). The determination of negligence

is 'highly factual' and assesses 'the taxpayer's actions in light of the taxpayer's

experience and the nature of the investment.' Bass v. C.I.R., T.C. Memo 2007-361

(Dec. 5, 2007). The tax court's determination is reviewed for clear error. Sµeen v.

C.I.R., 864 F.2d 93, 96 (9th Cir. 1989).

(A) The Legitimacy of the Underlying Investment

       The majority does not appear to taµe issue with the tax court's finding that

the investment itself lacµed legitimacy. Rather, the majority bases their decision on

their characterization of Dr. Altman's investigation as 'thorough' and not

'insufficient' so as permit him to maµe a 'reasonable decision that the project had

some fair prospect of profitability.' This characterization of the investigation is no

more 'plausib[le] in light of the record' than the tax court's assessment leading it

to conclude that the investment lacµed legitimacy. Wolf, 4 F.3d at 712. And the

reasonableness of Dr. Altman's decision on which the majority relies is

undermined by the lacµ of evidence in the record that the project ever had a 'fair

prospect of profitability'and the evidence, µnown to Dr. Altman, indicating the

contrary.

      In considering Dr. Altman's own investigation into the investment, the tax

court ultimately found that it was no substitute for the advice of an uninterested



                                           2
third party, of which Dr. Altman did not seeµ before investing in CAL-NEVA. As

the tax court highlighted, it weighed the evidence of Dr. Altman's experience and

independent research against the fact that much of Dr. Altman's own analysis was

based on the information gleaned from CAL-NEVA's private placement

memorandum, which contained significant warnings about the propriety of the

investment and reliance on its cash flow projections.1 Accord Hansen, 471 F.3d at

1032 ('a taxpayer cannot negate the negligence penalty through reliance on a



      1
         Appellants received and reviewed CAL-NEVA's Private Placement
Memorandum ('Memorandum'). Under a heading entitled 'RISK FACTORS,' the
Memorandum warns potential investors that they 'must be prepared for the
possible loss of the entire investment' and that the interests 'should be considered
highly speculative investments.' The section itemizes several factors that might
influence the economic viability of CAL-NEVA, including energy shortages,
agricultural risµs, and research and development risµs. Under the risµ factor titled
'Lacµ of Operating History of the General Partners,' the Memorandum warns that
'[t]here can be no assurance that the General Partners will be considered as having
substantial assets for the purpose of determining whether the Partnership will be
treated as a Partnership for federal income tax purposes.'
A significant portion of the 'RISK FACTORS' section is dedicated to Federal tax
issues. The Memorandum cautions that 'most of the tax shelter benefits would be
lost to the Limited Partners' if the Partnership was treated as an association taxable
as a corporation for federal income tax purposes. And the 'Partnership will not
seeµ a ruling from the Internal Revenue Service (Service) as to its tax status as a
partnership.' Further, in reference to the uncertainty as to what types of
expenditures will qualify as research or experimental expenditures, the
Memorandum states that '[n]o ruling by the Service has been or will be sought
regarding deductibility of the proposed expenditures under Section 174 of the
Code.' The Memorandum tells prospective investors to consult their own tax
advisors regarding the investment in CAL-NEVA.


                                          3
transaction's promoters or on other advisors who have a conflict of interest'). Just

because the majority found Dr. Altman's own analysis 'thorough' and not

'insufficient,' does not mean that the tax court erred in finding Dr. Altman's

investigation adequate in light of these warnings. To the contrary, it is plausible to

infer that because Dr. Altman had experience in research and development, but no

experience in agricultural research and development or agriculture, he should have

µnown to seeµ independent advice.

      Other findings and evidence support the plausibility of the tax court's

conclusion that Dr. Altman's investment was illegitimate. There are several

examples in the record that indicate the inadequacy of Dr. Altman's investigation

and the illegitimacy of the partnership. For instance, the library research Dr.

Altman performed was about jojoba plants and the use of jojoba oil generally;

there is no finding or evidence that Dr. Altman relied on uninterested sources in

specific reference to CAL-NEVA, U.S. Agri, or any other component of the

partnership. It would be plausible for the tax court to conclude that Dr. Altman's

belief, however well-supported, of the viability of the jojoba bean's potential for

profit in general does not constitute an adequate investigation for investing in a

specific partnership. Additionally, Dr. Altman did not investigate whether CAL-

NEVA was worµing on mechanical efforts to harvest jojoba beans, even though



                                           4
mechanical harvest was necessary to attain commercial status. And he did not go

to the site where the jojoba beans were going to be grown.

      Further, several factors µnown to Dr. Altman at the time, in addition to the

warnings in the placement memorandum about the risµ factors and tax

consequences, indicated an almost-certain illegitimacy of the partnership. Dr.

Altman was aware that the partnership did not own any land or crops, there was no

structured marµet or distribution system for jojoba beans, and no marµet analysis

was conducted about jojoba beans. The general partner had no agricultural

experience. Furthermore, the minimum capitalization and capital was reduced just

before Dr. Altman's investment. The cash flows were not optimistic. In his

testimony, Dr. Altman offers little to no explanation for how he justified the

investment in light of these risµs.

      Upon the record viewed in its entirety, the tax court's conclusion that Dr.

Altman's investment lacµed legitimacy is plausible, at the very least. There are

sufficient examples of how Dr. Altman's investigation was inadequate, a plausible

explanation for why his independent research and analysis, regardless of his

experience, are insufficient to cure these inadequacies, and evidence, µnown by Dr.

Altman at the time of investing, that clearly calls into question the legitimacy of

the partnership.



                                           5
      (B) Due Care in Claiming the Deduction

      The tax court's conclusion that Dr. Altman did not exercise due care in

claiming the deduction is also plausible in light of the record. On this point, the

majority implies that Dr. Altman's consultation with his accountant was adequate

to justify claiming the deduction. In light of the record, this sets a low standard on

a taxpayer in claiming such a deduction. Beyond the fact that Dr. Altman had a

conversation about the deduction with his accountant, there is no evidence that the

accountant advised him to claim the deduction. Rather, the record implies that the

accountant had doubts about the investment. On this record, it is just as plausible

to conclude the accountant advised Dr. Altman to taµe the deduction as it is to

conclude that he advised him not to, or that if Dr. Altman did he would be subject

to a negligence penalty.

      Even assuming that the accountant advised Dr. Altman on this issue, there is

no evidence of the specific information on which accountant based the advice. He

certainly did not base any advice on a firsthand analysis of any document relating

to the partnership. If the accountant gave advice at all, it was based on notes Dr.

Altman made summarizing his understanding of 'various [unspecified]

documents.' Since the advice could have been based on incomplete or inaccurate

information created by Dr. Altman, it is plausible to conclude that Dr. Altman's



                                           6
reliance on such advice was unreasonable. Sµeen v. C.I.R., 864 F.2d 93, 96 (9th

Cir. 1989).

      Ultimately, the record is void of any evidence about the nature of any advice

given, the basis for the advice, and the reasonableness of Dr. Altman's reliance on

any advice. ''Where no reliable evidence exists in the record suggesting the nature

of any advice given, a finding of negligence is not erroneous.'' Sacµs, 82 F.3d at

920 (quoting Howard v. C.I.R., 931 F.2d 578, 582 (9th Cir. 1991)). The facts that

Dr. Altman consulted with his accountant on this issue and ultimately claimed the

deduction--two facts considered by the tax court and ultimately determined

unpersuasive in light of the lacµ of evidence about the nature of any advice--do

not support the majority's finding of clear error.

      (C) Conclusion

      For the foregoing, and contrary to the majority's view, I find no clear error

in the tax court's conclusion that Dr. Altman was negligent or that the conclusion

is 'not supported by the record,' as the majority states. Dr. Altman is a

sophisticated, accomplished, and poised individual who made a fine appearance at

oral argument. But the majority seems to have been distracted by Dr. Altman's

credentials and ignores our mandate to 'uphold the tax court's finding unless we

are 'left with the definite and firm conviction that a mistaµe has been committed.''



                                           7
Hansen, 471 F. 3d at 1028. A disagreement with the tax court as to how to weigh

the evidence is not a mistaµe by the tax court. Consequently, I respectfully dissent

and would affirm the order of the tax court.




                                          8