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There was ample case law and commentary at the time of
petitioners' investment addressing the disallowance of tax
benefits flowing from transactions lacking economic substance.
Indeed, petitioner testified that had he been aware of the
nonrecourse nature of the debt issued by F & G he would not have
invested in Northeast. Yet the nonrecourse nature of the debt
issued by F & G was unambiguously disclosed in multiple sections
of the offering memorandum. More significantly, the transaction
here was a sham, and that was not the case in Epsten. Here
petitioner accepted an inflated value of $1,162,666 each for
machines with an actual value not in excess of $50,000, and
petitioner made no investigation of the valuation. The Epsten
case, involving the interpretation of recently enacted law, does
not support petitioners' investment in a sham transaction
involving inflated valuations without investigation.
Finally, petitioners argue that they had a business motive
for their investment in Northeast, independent of any tax
benefits. Their alleged intent in making the investment was to
obtain a stream of rental income generated from the resale and
reuse of recycled plastic. Petitioner was aware that plastics
were oil derivatives. Petitioner argues, in general terms, that
because of the media coverage of a supposed oil crisis in the
United States during 1981, he believed that an investment in
plastics recycling had good economic potential. In addition,
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