George W. Brooke and Karen Brooke - Page 10

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               Moreover, any consideration of the Encore prospectus and               
          accompanying tax opinion, in light of their discussions of tax              
          advantages, risk of audit, and risk of litigation in the Tax                
          Court, would have alerted a prudent and reasonable investor to              
          the questionable nature of the promised deductions and investment           
          tax credits.  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 tax Attorney Mr.             
          Henry D. Nunez, stating the following:                                      
               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                    
               also be available to assist the lessee’s counsel in                    
               defense before the U.S. District Court, U.S. Tax Court                 
               or the U.S. Court of Claims.                                           
                                                                                     
               Encore's prospectus contains in substance only one page,               
          discussing in general terms the gospel record market.  The                  
          prospectus does not specifically address the master recordings              
          leased by Encore, the quality of such, nor any other facets of              
          the Encore program.                                                         
               The “How Our Program Works” section of the prospectus is one           
          page in length containing four paragraphs.  Three paragraphs are            
          devoted to the tax aspects of the program, and one paragraph                
          refers to the lease agreement.  The remainder of the page                   



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Last modified: May 25, 2011