- 30 -
offering memorandum, had conversations with Taggart and Roberts,
and visited the PI plant. Unlike the adviser in Anderson, he did
not thoroughly investigate or educate himself in the industry
being invested in. In fact, Gallagher made it clear at the trial
that Bankers Trust's due diligence responsibilities regarding
Empire were limited to a review of the tax opinion letter. In
view of the $212,012 claimed basis for the interest of each
petitioner in the machinery, from which the investment credits
stemmed, a substantial amount and more than eight times greater
than the cash invested, plainly something more was required.
Accordingly, we find petitioners' reliance on the Anderson case
inapplicable.
Under the circumstances of these cases, petitioners Bennett
and Black failed to exercise due care in claiming the large
deductions and tax credits with respect to Empire on their
respective Federal income tax returns. We hold that petitioners
did not reasonably rely upon Gallagher and the offering
memorandum, or in good faith investigate the underlying
viability, financial structure, and economics of the Empire
transaction. In fact, the records indicate that petitioners were
more influenced by the fact that their fellow executives at
Ingersoll-Rand were investing in Sentinel EPE recycler
partnerships than by anything they learned from Gallagher or the
offering memorandum. Black testified that he "was very impressed
by the fact that some of our supposed financial geniuses at
Page: Previous 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 NextLast modified: May 25, 2011