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Between the years 1964 and 1982, petitioner invested money with
Mr. Sheets approximately two or three times per year. Petitioner
experienced a favorable rate of financial success with Mr.
Sheets' investment suggestions, which consisted primarily of real
estate investments such as land development.
During 1982, Mr. Sheets approached petitioner about
investing in Blythe II, which was being promoted as an
agricultural research and development partnership. Blythe II was
the first agricultural type investment opportunity that had been
proposed by Mr. Sheets for consideration by petitioner. Mr.
Sheets provided petitioner with a fairly voluminous private
placement memorandum2 (the offering), which described the
proposed investment in, and the activities to be conducted
through, Blythe II. Petitioner admittedly only scanned the
document and did not carefully read each page. Instead,
petitioner passed along the offering to his certified public
accountant, Gary Mathis (Mr. Mathis), who routinely reviewed
petitioner's other investment opportunities. After perusing the
offering, Mr. Mathis advised petitioner that Blythe II appeared
to be a reasonable investment opportunity and that petitioner
should be entitled to deductions for research and development
costs, as well as other partnership expenses.
2 The private placement memorandum consisted of some 47
pages, plus 8 exhibits, and a table of contents.
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