- 25 -
each invested only $25,000 in Empire.5 The direct reductions in
petitioners' respective Federal income taxes, from just the tax
credits, equaled 170 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 [Empire] deal." Indeed,
Gallagher testified that he probably told petitioners that they
would never be out of pocket on their Empire investment. A
reasonably prudent person would not conclude without substantial
investigation that the Government was providing significant tax
benefits to taxpayers in these circumstances. McCrary v.
Commissioner, 92 T.C. 827, 850 (1989).
The parties in these consolidated cases stipulated that the
fair market value of a Sentinel EPE recycler in 1981 and 1982 was
not in excess of $50,000. Notwithstanding this concession,
petitioners contend that they were reasonable in claiming credits
on their Federal income tax returns based upon each recycler
having a value of $1,162,666. In support of this position,
petitioners submitted into evidence preliminary reports prepared
for respondent by Ernest D. Carmagnola (Carmagnola), the
president of Professional Plastic Associates. Carmagnola had
been retained by the Internal Revenue Service in 1984 to evaluate
5 Petitioners Bennett used $22,328 of the claimed credits on
their 1981 return and carried back the unused portion of the
credits to 1978 and 1979 in the respective amounts of $19,120 and
$954.
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011