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benefits for each $50,000 invested were investment tax credits in
1981 of $79,200 plus deductions in 1981 of $42,491. On their
1981 tax returns, petitioners each indicated ownership of
investment credit property valued at $198,016 as a result of
their participation in the Hyannis deal. In the first year of
the investment alone, petitioners each claimed an operating loss
in the amount of $20,327 and investment tax and business energy
credits related to Hyannis totaling $39,604, while petitioners'
each invested only $25,000 in Hyannis. The direct reductions in
petitioners' respective Federal income tax, from just the tax
credits, equaled 158 percent of their cash investment.
Therefore, like the taxpayers in Provizer v. Commissioner, T.C.
Memo. 1992-177, "except for a few weeks at the beginning,
petitioners never had any money in the [Hyannis] deal." A
reasonably prudent person would not conclude without substantial
investigation that the Government was providing massive tax
benefits to taxpayers in these circumstances. McCrary v.
Commissioner, 92 T.C. 827, 850 (1989).
We think petitioners Pace and Berry failed to exercise due
care in claiming large deductions and tax credits with respect to
Hyannis on their respective 1981 Federal income tax returns.
They did not reasonably rely upon Greenstein and the offering
memorandum, or in good faith investigate the underlying
viability, financial structure, and economics of the Hyannis
transaction. We hold, upon consideration of the entire records,
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