sellers and with representatives of Inter Island Charters. At
the end of March 1985, petitioners traveled to Florida for a
weekend and arranged for purchase of the fishing boat.
Petitioners were not provided with a choice of boats from the
seller's inventory.
Prior to purchasing the boat, Mr. Hilliard was furnished
with a prospectus-type generic analysis of a boat investment
prepared by Robert Jarkow (Jarkow), a certified public
accountant. The report summarized projected cash-flow and net
after-tax benefits to be derived from the purchase and charter of
a "luxury sailing vessel." The analysis, based on various
assumptions regarding tax bracket, investment amount, and rental
revenues, contained the projections that there would be tax
losses for the first 5 years, and that investment tax credits and
depreciation would generate substantial tax benefits with nominal
amounts of cash expenditure. For example, Jarkow's analysis
reflected that an $11,200 initial investment would produce a
$51,000 tax loss in the first year. A review of the financial
and tax analysis in Jarkow's "prospectus" shows that tax benefits
would exceed out-of-pocket expenditures irrespective of whether
the boat was actually chartered. Petitioners did not review in
detail the profit projections for a "luxury sailing vessel"
prepared by Jarkow.
After viewing the fishing boat, petitioners completed the
purchase by signing several previously prepared documents,
including documents establishing petitioners' wholly owned S
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