t c memo united_states tax_court kenneth and dorothy hitchen petitioners v commissioner of internal revenue respondent docket nos filed date kenneth hitchen and dorothy hitchen pro sese alan e staines for respondent memorandum findings_of_fact and opinion dawson judge these cases were assigned to special_trial_judge stanley j goldberg pursuant to the provisions of sec_7443a in effect at the time the petitions were filed in these cases and rule sec_180 sec_181 and sec_183 the court agrees with 1unless otherwise indicated section references are to the internal_revenue_code in effect during the years in issue and continued and adopts the opinion of the special_trial_judge as set forth below opinion of the special_trial_judge goldberg special_trial_judge in these consolidated cases respondent determined the following deficiencies in petitioners’ federal income taxes additions to tax and accuracy-related_penalties for the respective taxable years additions to tax sec sec sec sec year deficiency a dollar_figure n a 1dollar_figure dollar_figure dollar_figure big_number n a big_number big_number big_number 2dollar_figure big_number big_number big_number n a big_number big_number accuracy-related_penalties sec sec sec sec year deficiency c h d e dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 1in addition respondent determined that petitioners are liable for the sec_6653 addition_to_tax equal to percent of the interest due on the deficiency in and 2respondent conceded this addition_to_tax at trial sec_6662 d e and h refers to the sec_6662 accuracy-related_penalty for negligence or disregard of rules or regulations substantial_understatement_of_income_tax substantial_valuation_overstatement and gross_valuation_misstatement respectively respondent further determined that the entire amount of the deficiencies in and is subject_to the continued all rule references are to the tax_court rules_of_practice and procedure 2in docket no petitioners’ taxable years and are in dispute in docket no petitioners’ taxable_year is in dispute increased rate of interest charged on substantial_underpayment attributable to tax_motivated_transactions under sec_6621 the issues for decision in these cases are whether petitioners are entitled to farming expense deductions and to general business credits that they claimed with respect to an investment in a sheep breeding partnership promoted by walter j hoyt iii mr hoyt whether petitioners are liable for the additions to tax for a valuation overstatements and a gross_valuation_misstatement b negligence or disregard of rules or regulations and c substantial understatements of income_tax whether petitioners are liable for the increased rate of interest charged on substantial underpayments attributable to tax_motivated_transactions and whether respondent is equitably estopped from imposing additions to tax and interest on the deficiencies in these cases findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are 3references to sec_6621 are to sec_6621 as in effect with respect to interest accruing after date see tax_reform_act_of_1986 publaw_99_514 sec d 100_stat_2746 for interest accruing before that date but after date a nearly identical provision was codified at sec_6621 see id sec c a 100_stat_2744 deficit_reduction_act_of_1984 publaw_98_369 c 98_stat_682 sec_6621 was repealed in with respect to returns due after date omnibus budget reconciliation act of obra publaw_101_239 sec b d 103_stat_2399 incorporated herein by this reference petitioners resided in weed california on the dates the petitions were filed in these cases i petitioners and their investment petitioner husband mr hitchen was raised in england where he left school around the age of mr hitchen worked at various jobs and then served in the military for years petitioners were married in and they came to the united_states in mr hitchen began working at general mills in lodi california in and he continued working there through the years in issue mr hitchen earned wage income of dollar_figure in dollar_figure in dollar_figure in dollar_figure in dollar_figure in and dollar_figure in petitioner wife ms hitchen worked in an office prior to coming to the united_states in but she has not worked outside the home since that time in the latter part of mr hitchen learned that several of his co-workers at general mills were involved in investments promoted by mr hoyt at that time mr hoyt was paying approximately dollar_figure per investor as an incentive for current investors to bring in new investors mr hitchen asked his co- workers about the investment and petitioners then decided to look into making an investment themselves petitioners attended several investment meetings together following these meetings petitioners decided to invest in one of the partnerships promoted by mr hoyt hoyt partnership or hoyt investment in connection with the investment petitioners signed a form on date titled instructions to hoyt and sons ranches--acknowledgment of appointment of power_of_attorney this form provided i have given walter j hoyt iii the irrevocable authority to sign my name to a certificate of assumption of primary liability form as part of a transfer on a full recourse promissory note in the amount of dollar_figure that will become part of a transfer of debt agreement between me the partnership known as shorthorn genetic engineering ltd and hoyt sons ranches said note having been delivered to hoyt sons ranches to pay for breeding cattle purchased from hoyt sons ranches an oregon partnership in burns oregon which are to be held as breeding cattle by the above named partnership this authorizes mr hoyt to sign my name on the notes that were made for the purchase of registered shorthorn breeding cattle from hoyt sons ranches and no other purpose i understand i will owe this amount directly to hoyt sons ranches and not to my partnership my goal is that the value of my share of the cattle owned by the partnership in which you have a secured party interest must never fall below the amount for which i am personally liable if the value of my cattle does fall below the amount of my loan and you become aware of that you must so notify me within thirty days in order that i may make a damage claim to w j hoyt sons management company for possible default on the share-crop operating_agreement and or the cattle fertility warranties upon making the investment petitioners were told that they would get some money back when we retired petitioners however were uncertain how the investment was to provide income or profits petitioners did not consult with anyone outside mr hoyt’s organization prior to investing petitioners also did not visit or otherwise investigate the cattle partnership prior to making the investment although at a later time they visited a sheep ranch that they believed was related to their investment petitioners’ initial investment was into a cattle partnership known as shorthorn genetic engineering sge petitioners did not make any payment immediately upon signing the investment documents rather the funds for their initial investment were to be derived from the refunds petitioners were to receive upon filing their tax returns by letter dated date respondent notified petitioners that the refund that petitioners had requested on their return had been frozen the letter stated in relevant part we have reviewed certain tax deductions and or credits which are attributable to the above tax_shelter promotion sge based upon our review of that promotion we believe that the tax deductions and or credits are not allowable accordingly we have reduced the portion of any refund due to you which is attributable to the tax_shelter promotion the examination of the tax_shelter promotion will be completed as expeditiously as possible if the examination results in adjustments to your return you will be afforded the opportunity to exercise your appeal rights prior to preparing petitioners’ next tax_return for mr hoyt’s organization transferred petitioners’ partnership_interest from the sge cattle partnership to a sheep partnership known as river city ranches rcr petitioners were told by the hoyt organization to ignore communications from the internal_revenue_service irs as they were merely harassing hoyt investors petitioners continued investing in the hoyt partnership through approximately petitioners continued remitting their federal_income_tax refunds to the hoyt partnership until mr hitchen retired from general mills in starting in approximately petitioners began making substantial out-of- pocket cash payments in response to various requests and assessments by the partnership petitioners also were required to pay additional_amounts throughout the years representing tax_return preparation fees the losses and credits claimed by petitioners with respect to their taxable years through are discussed below petitioners claimed a deduction for a partnership loss of dollar_figure in but they did not claim a deduction for either a farming_loss or a partnership loss in in a letter to petitioners dated date mr hoyt stated in relevant part i have been notified by the general partners office that your contribution is still past due because this balance of dollar_figure has not been paid we are beginning collection enforcement your partnership note authorizes us to repossess shares of unpaid partnership units when your cattle sheep or truck units are taken back the internal_revenue_service regulations require us to notify them you have debt relief income of about times the amount you owe for example if you owe dollar_figure your income is dollar_figure this will be in addition to your other income it will be subject_to tax pincite percent big_number in this example the last payment by petitioners to rcr that appears in the record is a payment of dollar_figure by check dated date purportedly for a tax levy ii petitioners’ federal_income_tax returns petitioners filed a joint federal_income_tax return for each of the taxable years through in the return was prepared by a firm in lodi california that was unaffiliated with mr hoyt in no return preparer signed petitioners’ return in through the returns were prepared by individuals associated with entities affiliated with mr hoyt the relevant information from the through returns is as follows for petitioners filed a return that reported a total_tax liability of dollar_figure for petitioners filed a return that reported a total_tax liability of dollar_figure for petitioners filed a return that reflected a partnership loss of dollar_figure and a general_business_credit offsetting their tax_liability of dollar_figure resulting in zero tax_liability and a requested refund of dollar_figure respondent however did not send petitioners the requested refund pursuant to the letter from respondent to petitioners discussed above for petitioners filed a return that reflected a partnership loss of dollar_figure and a farming_loss of dollar_figure resulting in zero regular_tax_liability but an alternative_minimum_tax liability of dollar_figure petitioners filed with their return a form_3800 general_business_credit on which they claimed a tentative general_business_credit of dollar_figure although the record is not clear it appears that the source of this credit was a carryforward from the taxable_year because petitioners reported zero regular_tax_liability in none of this claimed credit was used by petitioners to offset any_tax liability for after filing their return petitioners filed a form_1045 application_for tentative refund on which they requested refunds with respect to their and taxable years based on the carryback of the unused general_business_credit claimed on the return on this form petitioners reported the following adjusted total_tax liabilities dollar_figure dollar_figure dollar_figure income_tax big_number big_number big_number general_business_credit -0- -0- other credits regular_tax_liability -0- -0- big_number alternative_minimum_tax liability big_number total_tax liability big_number for petitioners filed a return that reflected a farming_loss of dollar_figure resulting in zero tax_liability for petitioners filed a return that reflected a farming_loss of dollar_figure resulting in a tax_liability of dollar_figure the partnership loss claimed by petitioners in was claimed on a schedule e supplemental income schedule an attachment to the return stated that the loss of dollar_figure was a nonpassive ordinary_loss from rcr the farming losses claimed by petitioners in and were reported on schedules f farm income and expenses each of the schedules f listed petitioners as the proprietors of the farming activity and each stated that petitioners materially participated in the operation during the relevant year the losses were derived as follows gross_income -0- -0- -0- depreciation dollar_figure big_number dollar_figure big_number dollar_figure big_number board expense big_number big_number loss big_number big_number big_number no other expenses related to the farming activities were listed on the schedules f the detail depreciation schedule accompanying petitioners’ return in each of these years described the depreciable_property as breeding sheep 4only the first two pages of petitioners’ return appear in the record therefore the details surrounding petitioners’ claimed partnership loss and general_business_credit in that year are unknown we also note that the record is silent as to whether and if so how the taxable year--which is not before the court in these cases--was resolved by petitioners and respondent petitioners did not understand the nature of the partnership losses the farming losses or the general business credits at the time they signed their returns and the form_1045 but they did not seek advice concerning these items respondent issued petitioners a notice_of_deficiency reflecting the deficiencies and additions to tax as heretofore set forth in detail the underlying deficiencies in and are based solely on respondent’s disallowance of the general_business_credit that petitioners sought to carry back to those years using the form_1045 the underlying deficiencies in and are based on respondent’s disallowance of the schedule f losses and on computational adjustments to petitioners’ itemized_deductions resulting from these schedule f adjustments the schedule f losses were disallowed on several grounds including respondent’s determination that petitioners did not meet the at risk requirements of sec_465 the general business credits also were disallowed on several grounds including respondent’s determination that the underlying property did not meet the requirements of sec_46 the partnership loss claimed by petitioners in was not disallowed in the notice_of_deficiency because respondent determined it to be a partnership_item subject_to the provisions of the tax equity and fiscal responsibility act of publaw_97_248 96_stat_324 based on the above adjustments respondent determined that the amounts of tax required to be shown on petitioners’ returns accepting the partnership_item on the return as correct are dollar_figure in dollar_figure in dollar_figure in dollar_figure in and dollar_figure in opinion taxpayers generally bear the burden of proving the commissioner’s determinations in a notice_of_deficiency to be in error rule a while sec_7491 may shift the burden of production and or burden_of_proof to the commissioner in certain circumstances this section is not applicable in these cases because respondent’s examination of petitioners’ returns did not commence after date see internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 i farming losses and general business credits taxpayers are required to maintain records sufficient to establish the amounts of income deductions and other items which underlie their federal_income_tax liabilities sec_6001 sec_1_6001-1 e income_tax regs petitioners’ position regarding the farming losses and the general business credits is unclear because their arguments focus on the amount of money that they invested in the hoyt partnership rather than on the items appearing on their returns and because petitioners admit that they do not know how the deductions and credits were derived petitioners appear to have conceded the merits of these items furthermore petitioners did not set forth clear and concise assignments of error in their petitions concerning these items see rule b in any event petitioners have provided no substantiation or other evidence concerning the farming losses or the general business credits related thereto in the absence of substantiation petitioners are not entitled to the farming_loss deductions or the credits sec_6001 sec_1_6001-1 e income_tax regs we therefore sustain respondent’s determinations as to the underlying deficiencies in these cases ii additions to tax a valuation overstatements with respect to petitioners’ taxable years and sec_6659 a generally imposes an addition_to_tax on any portion of an underpayment of income_tax by an individual which is attributable to a valuation_overstatement a valuation_overstatement exists if the value of any property or the adjusted_basis of any property claimed on any return i sec_150 percent or more of the amount determined to be the correct amount sec_6659 the addition_to_tax applies only if 5references to sec_6659 are to sec_6659 as in effect with respect to returns that were filed after date and that were due before date see economic_recovery_tax_act_of_1981 publaw_97_34 95_stat_341 obra sec 103_stat_2395 an underpayment for a taxable_year that is attributable to valuation overstatements is dollar_figure or greater sec_6659 the amount of the addition_to_tax varies depending upon the size of the discrepancy in the valuation sec_6659 the secretary has the discretion to waive the sec_6659 addition_to_tax if the taxpayer shows that there was a reasonable basis for the valuation and that the claim was made in good_faith sec_6659 with respect to petitioners’ taxable_year sec_6662 imposes a 20-percent accuracy-related_penalty on the portion of an underpayment attributable to any one of various factors one of which is a substantial_valuation_misstatement under chapter sec_6662 a substantial_valuation_misstatement under chapter exists if the value of any property or the adjusted_basis of any property claimed on any return of tax_imposed_by_chapter_1 is percent or more of the amount determined to be the correct amount sec_6662 the penalty applies only if an underpayment for a taxable_year that is attributable to substantial valuation overstatements by an individual taxpayer is greater than dollar_figure sec_6662 the sec_6662 penalty is increased to percent in the case of gross_valuation_misstatements which occurs where the overvaluation described above is percent or more rather than percent or more of the correct amount sec_6662 the sec_6662 penalty is not imposed on any portion of an underpayment where a taxpayer has reasonable_cause for and acted in good_faith with respect to such portion sec_6664 in the notice_of_deficiency respondent determined that the entire amount of the deficiencies in and and dollar_figure of the deficiency in is attributable to valuations that were more than percent of the correct valuation resulting in an addition_to_tax of percent in each year see sec_6659 respondent further determined that the entire amount of the deficiency in is attributable to a valuation that was more than percent of the correct valuation resulting in an penalty of percent for a gross_valuation_misstatement in that year sec_6662 e h respondent concedes that petitioners are not liable for the valuation_overstatement additions to tax in and on the portions of the deficiencies attributable to the disallowance of the schedule f deductions for boarding fee expenses because no valuations were involved with these claimed deductions petitioners have presented no evidence concerning the valuations underlying the general business credits and the schedule f depreciation_deductions insofar as the deficiencies are attributable to the disallowance of those items we therefore sustain respondent’s determinations regarding the substantial valuation overstatements and the gross_valuation_misstatement petitioners have not argued and no evidence in the record suggests that they had a reasonable basis or reasonable_cause for making the claims accordingly with respect to and 1985--the years in which the entire deficiency was based upon disallowance of the general_business_credit carrybacks-we hold that petitioners are liable for the sec_6659 addition_to_tax with respect to the entire amount of the deficiency in each year we further hold that petitioners are liable for the sec_6659 addition_to_tax in and and the percent sec_6662 penalty in with respect to that portion of the deficiency in each of those years that is attributable to respondent’s disallowance of the schedule f depreciation_deductions petitioners however are not liable for the respective additions to tax with respect to the remaining portions of the deficiencies in and because these portions were not attributable to valuation overstatements finally we note that in the notice_of_deficiency respondent determined that petitioners are liable for the sec_6662 penalty in both for a substantial_valuation_overstatement and a gross_valuation_misstatement resulting in two separate additions to tax however the penalty for a gross_valuation_misstatement is applied in lieu of the penalty for a substantial_valuation_overstatement they cannot both be applied to the incorrect valuation of the same property sec_6662 thus because petitioners are liable for the percent penalty with respect to the gross_valuation_misstatement in they are not liable for the percent penalty for a substantial_valuation_overstatement b negligence with respect to petitioners’ taxable years and sec_6653 would impose two additions to tax on underpayments attributable to negligence or intentional_disregard_of_rules_and_regulations the first addition_to_tax is equal to percent of the entire amount of an underpayment if any part of the underpayment is due to negligence or intentional disregard of rules or regulations the second addition_to_tax is equal to percent of the interest due on only that portion of the underpayment that is attributable to negligence or intentional disregard of rules or regulations respondent determined that petitioners are liable for both of the additions to tax with 6for petitioners’ taxable years and this addition_to_tax is imposed under sec_6653 for petitioners’ taxable_year this addition_to_tax is imposed under sec_6653 7for petitioners’ taxable years and this addition_to_tax is imposed under sec_6653 for petitioners’ taxable_year this addition_to_tax is imposed under sec_6653 respect to the entire amount of the deficiency in each of and with respect to petitioners’ taxable_year sec_6653 would impose an addition_to_tax equal to percent of the entire amount of an underpayment if any part of the underpayment is due to negligence or intentional disregard of rules or regulations respondent determined that petitioners are liable for the sec_6653 addition_to_tax with respect to the entire amount of the deficiency in with respect to petitioners’ taxable_year sec_6662 would impose a 20-percent accuracy-related_penalty on the portion of an underpayment attributable to any one of various factors one of which is negligence or disregard of rules or regulations sec_6662 the sec_6662 penalty is not imposed on any portion of an underpayment where a taxpayer has reasonable_cause for and acted in good_faith with respect to such portion sec_6664 negligence is defined as the ‘lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances ’ 85_tc_934 quoting marcello v commissioner 380_f2d_499 8the amount reflected in the notice_of_deficiency for the sec_6653 addition_to_tax in appears to be incorrect in that it exceed sec_5 percent of the deficiency in that year the correct calculation should be made by the parties pursuant to the rule_155_computations 5th cir affg in part and remanding in part on another ground 43_tc_168 see 925_f2d_348 9th cir affg 92_tc_1 negligence is determined by testing a taxpayer’s conduct against that of a reasonable prudent person 731_f2d_1417 9th cir affg 79_tc_714 courts generally look both to the underlying investment and to the taxpayer’s position taken on the return in evaluating whether a taxpayer was negligent 82_f3d_918 9th cir affg tcmemo_1994_217 the commissioner’s decision to impose the negligence addition_to_tax or penalty is presumptively correct 857_f2d_1383 9th cir affg dister v commissioner tcmemo_1987_217 820_f2d_1464 9th cir a taxpayer has the burden of proving that commissioner’s determination is erroneous and that he did what a reasonably prudent person would have done under the circumstances see rule a hansen v commissioner supra hall v commissioner 729_f2d_632 9th cir affg tcmemo_1982_337 58_tc_757 good_faith reliance on professional advice concerning tax laws may be a defense to the negligence additions to tax 469_us_241 however reliance on professional advice standing alone is not an absolute defense to negligence but rather a factor to be considered 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 in order to be considered as such the reliance must be reasonable id to be objectively reasonable the advice generally must be from competent and independent parties unburdened with an inherent conflict of interest not from the promoters of the investment 39_f3d_402 2d cir affg tcmemo_1993_480 94_tc_637 affd without published opinion sub nom cowles v commissioner 949_f2d_401 10th cir affd without published opinion 956_f2d_274 9th cir 91_tc_524 edwards v commissioner tcmemo_2002_169 petitioners invested in the hoyt partnership in the latter part of as part of their initial investment in the hoyt partnership petitioners gave mr hoyt the authority to sign a promissory note on their behalf in the amount of dollar_figure petitioners trusted the hoyt organization when they were told that this was a mere formality necessary for their investment petitioners did not investigate either the partnership as a whole or the implications of the dollar_figure promissory note petitioners filed a tax_return for the initial year of their investment using a tax_return_preparer affiliated with the hoyt organization petitioners claimed a partnership loss for that purportedly reduced their tax_liability to zero for that year relatively soon after filing their return in date respondent notified petitioners that respondent believed that the partnership loss was not allowable and that respondent was holding the refund that petitioners had requested despite this warning petitioners continued with their investment and they took no steps to verify the legitimacy of mr hoyt’s organization the hoyt partnership or the tax claims for the next year mr hoyt’s organization switched petitioners from the partnership named in the irs warning letter to a different partnership as instructed by the hoyt organization petitioners also began reporting the bulk of the hoyt-related losses as losses from farming activities rather than from partnerships for the claimed hoyt-related losses purportedly reduced petitioners’ tax_liability to dollar_figure also in petitioners filed the form_1045 on which they claimed the carryback of the general_business_credit purportedly reducing their tax_liability from dollar_figure to dollar_figure and their tax_liability from dollar_figure to dollar_figure by petitioners were claiming the hoyt losses entirely on schedules f these losses purportedly reduced petitioners’ tax_liability to a combined total of dollar_figure for and in summary the tax returns and the form_1045 filed by petitioners during the years in issue resulted in a claimed total_tax liability of dollar_figure mr hitchen earned wages during those years totaling dollar_figure petitioners admit that they did not know the reasoning behind the tax benefits touted by the hoyt organization that led to this nearly complete elimination of federal tax_liability yet petitioners did nothing to inquire into the legitimacy of the tax claims other than to assume the returns prepared by the hoyt organization were correct furthermore most of the too good to be true tax benefits were claimed by petitioners within months of receiving the warning letter from respondent and immediately after the hoyt organization switched petitioners to a new partnership and advised petitioners to begin reporting losses as having been derived from farming activities rather than from partnerships-- efforts that were apparently designed to avoid detection by the irs petitioners chose to follow mr hoyt’s advice however and they ignored any communications from the irs while we are mindful of the fact that petitioners were unsophisticated in both investment and tax matters we conclude that petitioners’ actions in relation to the hoyt investment constituted a lack of due care and a failure to do what reasonable or ordinarily prudent persons would do under the circumstances first petitioners entered into an investment allegedly involving dollar_figure of personal debt without investigating its legitimacy second and foremost petitioners trusted individuals who told them that they effectively could escape paying federal income taxes for a number of years-- petitioners reported a tax_liability of dollar_figure on dollar_figure of income over a 5-year period based upon advice from mr hoyt’s organization--and that they could do so utilizing losses and credits with respect to which petitioners understood neither the source nor the legal rationale we similarly conclude that petitioners did not have reasonable_cause for any of the underpayments resulting from the tax claims related to their investment these conclusions are reinforced by the fact that petitioners received a warning from respondent within months of requesting their first refund based upon the hoyt investment a warning that petitioners ignored furthermore petitioners’ reliance on mr hoyt and those in his organization--the promoters of the investment and the persons receiving the bulk of the monetary benefits of the tax claims--was objectively unreasonable as such it cannot be a defense to the negligence additions to tax finally we are also mindful of the fact that petitioners ultimately lost the bulk of the tax refunds that they received which they had remitted to mr hoyt as part of their investment and which they never received back nevertheless petitioners believed that this money was being used for their own personal benefit--at the time that they claimed the refunds they believed that they would eventually benefit from them petitioners also lost a substantial amount of out-of-pocket cash which they paid to mr hoyt in the years following the years in issue in fact some of these later payments were made in response to not-so- thinly-veiled threats by mr hoyt of retaliatory action if petitioners failed to remit the payments however unfortunate petitioners’ situation became it cannot alter our conclusion that petitioners were negligent with respect to entering the hoyt investment and that they were negligent with respect to the positions that they took on their tax returns and the form_1045 in the years in issue we hold that petitioners are liable for the sec_6653 additions to tax for negligence with respect to the entire amount of the deficiency in each of and with respect to we note that only one sec_6662 penalty may be applied with respect to any given portion of an underpayment even if that portion is attributable to more than one of the relevant factors sec_1_6662-2 income_tax regs accordingly we hold that petitioners are liable for the sec_6662 penalty for negligence with respect to that portion of the deficiency in that is not attributable to the gross_valuation_misstatement discussed above c substantial understatements of income_tax with respect to petitioners’ taxable years and sec_6661 imposes an addition_to_tax on any underpayment attributable to a substantial_understatement_of_income_tax a substantial_understatement_of_income_tax exists if the amount of an understatement in a taxable_year exceeds the greater of dollar_figure or percent of the tax required to be shown on the return sec_6661 an understatement in turn is defined generally as the excess of the amount of tax required to be shown on the return over the amount of tax shown sec_6661 the amount of an understatement is reduced in certain situations where a taxpayer has substantial_authority for the treatment of an item or where the taxpayer adequately discloses the relevant facts affecting the treatment of that item sec_6661 however in the case of any item attributable to a tax_shelter as defined in sec_6661 the adequate_disclosure exception does not apply and in order for the substantial_authority exception to apply the taxpayer must reasonably believe that the treatment of the item was more_likely_than_not the proper treatment sec_6661 finally the secretary has the discretion to waive all or part of the sec_6661 addition_to_tax if the taxpayer shows that he had reasonable_cause for the understatement and that he acted in good_faith sec_6661 the sec_6661 addition_to_tax is not imposed on any portion of a substantial_understatement with respect to which an addition_to_tax under sec_6659 is imposed sec_6661 if a substantial_understatement exists in a taxable_year and the sec_6659 addition_to_tax is imposed only with respect to a portion of that substantial_understatement then the sec_6661 addition_to_tax is imposed with respect to the remainder of the understatement sec_1 f income_tax regs as discussed above in connection with the negligence additions to tax petitioners did not understand the partnership and farming losses and the general business credits yet they did not seek advice concerning these items we conclude that petitioners have not shown that they had substantial_authority or that they acted with reasonable_cause and in good_faith with respect to any portion of the understatements in each of the relevant years it is also evident from the record that petitioners did not disclose the relevant facts concerning the losses and credits in the absence of substantial_authority or adequate_disclosure the amount of the understatement in each year is not reduced pursuant to sec_6661 and because petitioners did not act with reasonable_cause and in good_faith sec_6661 is not applicable in each of the relevant years percent of the amount of tax required to be shown on petitioners’ return is less than dollar_figure because each of the understatements in and is greater than dollar_figure the understatements are attributable to substantial understatements of income_tax as defined in sec_6661 we have sustained respondent’s determination that petitioners are liable for the sec_6659 addition_to_tax with respect to the entire amount of the deficiencies in and thus we hold that petitioners are not liable for the sec_6661 additions to tax in those years sec_6661 we have sustained respondent’s determination that petitioners are liable for the sec_6659 addition_to_tax with respect to the portions of the deficiencies in and that are attributable to the disallowance of the schedule f depreciation_deductions thus we hold that petitioners are not liable for the sec_6661 additions to tax with respect to those portions of the deficiencies in those years petitioners however are liable for the sec_6661 additions to tax with respect to the portions of the deficiencies in and that are attributable to the disallowance of the schedule f deductions for boarding fee expenses see sec_1 f income_tax regs finally we note that as discussed above only one sec_6662 accuracy-related_penalty may be applied with respect to any given portion of an underpayment sec_1_6662-2 income_tax regs because we have already held that the entire deficiency in is subject_to a sec_6662 penalty the substantial_understatement_of_income_tax in does not increase petitioners’ liability for the sec_6662 penalty for that year iii tax_motivated_transactions sec_6621 provides an increased rate of interest for any substantial_underpayment attributable to tax_motivated_transactions a substantial_underpayment attributable to tax_motivated_transactions is defined under sec_6621 as any underpayment of taxes imposed by subtitle a for any taxable_year which is attributable to or more tax_motivated_transactions if the amount of the underpayment for such year so attributable exceeds dollar_figure a tax_motivated_transaction is defined under sec_6621 to include any valuation_overstatement within the meaning of sec_6659 any loss disallowed by reason of sec_465 and any credit disallowed under sec_46 sec_6621 and ii in general sec_465 allows losses only to the extent of the aggregate amount with respect to which the taxpayer is at risk for such activity sec_465 sec_46 generally reduces a taxpayer’s credit_base in property by the amount of nonqualified_nonrecourse_financing with respect to such property--where the taxpayer and the property are subject_to the limitations of section 465--thereby limiting the amount of general_business_credit available to the taxpayer sec_38 b sec_46 c c a and b petitioners have not presented any evidence or arguments concerning the imposition of tax motivated interest on the deficiencies specifically petitioners have not argued and nothing in the record indicates that respondent is in error concerning his determinations that petitioners did not meet the at risk requirements of sec_465 with respect to the farming losses and that the general_business_credit was disallowed pursuant to sec_46 we therefore sustain respondent’s determination that the sec_6621 increased rate of interest is applicable with respect to the deficiencies in petitioners’ taxable years and see rule a sec_6621 does not apply with respect to petitioners’ taxable_year see supra note iv equitable_estoppel petitioners argued at trial that they object to the imposition of additions to tax and interest on the deficiencies they argue that respondent knew that there were problems with the hoyt partnerships but that respondent nevertheless allowed petitioners to continue in their investment and to keep receiving refunds based on the returns they filed that were prepared by the hoyt organization to the same effect petitioners stated in a document filed with the court prior to trial we would like to add the interest and penalties we strongly object to the fault lies with the internal_revenue_service they allowed us to join in a partnership that was illegal the year we joined the interest and penalties have been accruing since we note that while this court has jurisdiction to review the applicability of the sec_6621 increased rate of interest discussed above we generally lack jurisdiction to redetermine the amount of interest due on a deficiency under sec_6601 prior to entry of a decision redetermining the deficiency see sec_6621 sec_7481 as currently in effect rule 107_tc_249 see also sec_6404 as currently in effect regarding judicial review of a failure to abate interest thus petitioners’ arguments concerning the amount of interest due on the deficiencies is not properly before the court at this time to the extent that petitioners’ arguments can be interpreted as a claim that respondent should be equitably estopped from imposing the additions to tax at issue in these cases we disagree with petitioners for the reasons discussed below equitable_estoppel is a judicial doctrine that ‘precludes a party from denying his own acts or representations which induced another to act to his detriment ’ 98_tc_695 quoting 74_tc_743 affd 673_f2d_784 5th cir it is well established that the doctrine_of equitable_estoppel should be applied against the commissioner ‘with the utmost caution and restraint ’ 90_tc_684 quoting 76_tc_209 affd 810_f2d_209 d c cir furthermore the supreme court has stated that the government may not be estopped on the same grounds as other litigants opm v richmond 496_us_414 467_us_51 the following conditions must be satisfied before equitable_estoppel will be applied against the government a false representation or wrongful misleading silence by the party against whom the opposing party seeks to invoke the doctrine an error in a statement of fact and not in an opinion or statement of law ignorance of the true facts reasonable reliance on the acts or statements of the one against whom estoppel is claimed and adverse effects of the acts or statement of the one against whom estoppel is claimed 104_tc_13 affd 140_f3d_240 4th cir in addition to the traditional elements of equitable_estoppel the court_of_appeals for the ninth circuit to which appeal lies in these cases requires the party seeking to apply the doctrine against the government to prove affirmative misconduct 1_f3d_932 9th cir the aggrieved party must prove ‘affirmative misconduct going beyond mere negligence’ and even then ‘estoppel will only apply where the government’s wrongful act will cause a serious injustice and the public’s interest will not suffer undue damage by imposition of the liability ’ 872_f2d_277 9th cir quoting 847_f2d_515 9th cir affirmative misconduct requires ongoing active misrepresentations or a pervasive pattern of false promises as opposed to an isolated act of providing misinformation purcell v united_states supra pincite affirmative misconduct is a threshold issue to be decided before determining whether the traditional elements of equitable_estoppel are present id pincite petitioners have not met the threshold requirement for equitable_estoppel because they have not shown that respondent engaged in affirmative misconduct of any kind to the contrary respondent took efforts to halt petitioners’ involvement by freezing their claimed refund and by notifying petitioners soon after they filed the return claiming the refund that respondent believed the deductions claimed on the return were not allowable respondent’s delay in disallowing the future deductions and credits claimed by petitioners is not evidence of affirmative misconduct by respondent especially in light of the changes made on the return and later returns in an apparent attempt to avert respondent’s notice because petitioners have not met the threshold requirement for equitable_estoppel against the government we need not address the traditional conditions for application of equitable_estoppel to reflect the foregoing decisions will be entered under rule