Taki N. Anagnoston; Kathleen Anagnoston, Petitioners-appellants, v. Commissioner of Internal Revenue, Respondent-appellee, 114 F.3d 1193 (9th Cir. 1997)

MEMORANDUM^** 

The Tax Court properly concluded that the sheep investment was a sham, under the standards set out in Sacks v. Commissioner, 69 F.3d 982 (9th Cir. 1995). Unlike Sacks, nonrecourse financing was used. Risk of loss was avoided by Dr. Barbara's promise of a minimum yearly return. Dr. Anagnoston was indifferent to the fact that some of the sheep in the investment units he bought were dead, and some were listed in both units. Dr. Anagnoston did not show that the overall structure of the transaction was designed to produce, or could produce, real economic gain. Keane v. Commissioner, 865 F.2d 1088, 1092 (9th Cir. 1989).

Taxpayers failed to show that the understatement of taxes was not due to negligence, so the negligence penalty was appropriate. See 26 U.S.C. § 6653, Collins v. Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988); Allen v. Commissioner, 925 F.2d 348, 353 (9th Cir. 1989). When he asked his accountant for advice, his accountant said "stay in the real property and medical areas," and said that the proposal "scares me" because, among other things, the "IRS can toss it out for lack of a profit motive." Cf. Zmuda v. Commissioner, 731 F.2d 1417, 1422-23 (9th Cir. 1984).

That the transaction was a sham establishes that it was "tax motivated" for purposes of 26 U.S.C. § 6621(c). Erhard v. Commissioner, 46 F.3d 1470, 1479 (9th Cir. 1995); Hildebrand v. Commissioner, 967 F.2d 350, 353 (9th Cir. 1992).

AFFIRMED.