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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