It is unclear from the record the exact amount of petitioner’s
share of the initial investment in Encore.
Encore was incorporated on February 1, 1982. Encore is in
the business of leasing master recordings of previously released
pop and gospel albums. Master recordings are original recordings
of performances on audio tape used to produce disc records and
tapes for mass distribution. In 1984, Encore leased master
recordings for gospel records, educational computer programs, and
home computer games.
Clint Collings (Collings) was the president and sole
shareholder of Encore during the year at issue. Encore's
prospectus for 1984 consists of 24 pages, of which 14 pages are
cover sheets, table of contents, blank sample forms, and blank
pages. Encore's promotional material for 1984 also includes a
51-page "Tax Opinion" and an 8-page addendum addressing 1984 tax
changes both prepared by Attorney Henry D. Nunez (Nunez).
Although page 1 of the prospectus refers to an "exciting
business opportunity while taking advantage of current tax laws",
it mentions very little about said opportunity, while strongly
emphasizing the benefits derived from the investment tax credit.
The prospectus contains a letter from Mr. Nunez stating:
upon request by Encore, we will assist a lessee and
their counsel and accountants if the Internal Revenue
Service challenges the tax structure of the transaction
as set forth in the Opinion and the lessee is unable to
reach a satisfactory resolution at the initial audit
level. Such assistance would include advice in
connection with their appearances before the appellate
division of the Internal Revenue Service. We would
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