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Petitioner defined "state-of-the-art" as "highly-electronic,
rather than a lot of mechanical parts--electrical parts, where
you can just punch buttons in to the work, rather than people
physically moving levers and changing things." However, the
Sentinel recyclers were not "state-of-the-art" by any definition.
The Sentinel EPE recycler was incapable of recycling expanded
polyethylene by itself, and had to be used in connection with
extruders and pelletizers. In contrast, the Nelmor Regenolux,
which was available in 1981 for $38,000, was fully capable of
recycling expanded polyethylene or expanded polystyrene and
worked better than either the Sentinel EPE or EPS recycler.
Petitioner testified that he invested in SAB Recovery based
on a conversation with his father, and Becker's "* * * pushing me
into it". As for SAB Recycling, petitioner testified that he
decided to invest in that partnership after Becker purportedly
told him that SAB Recovery had done well, and again speaking with
his father. However, petitioner failed to explain how SAB
Recovery had done well, except for generating claims to tax
benefits. SAB Recovery received no cash receipts during 1982,
and to the extent that the Sentinel EPE recyclers had been placed
with end-users, they were placed with end-users that did not have
enough scrap ever to pay off the notes on the machines.
Becker certainly recognized that the purported value of the
Sentinel EPE recycler generated the deductions and credits in
this case. Becker explained the tax benefits to petitioner, and
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