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give advice on the matter but was impressed by the information in
the offering materials.
The offering materials for MSA consists of 267 pages, a
significant portion of which is dedicated to a discussion of the
tax aspects of the investments. For example, in the initial
pages of the memorandum, the following information is provided:
Estimated Tax Although Medical Science Associates, Limited
Effect Per Partnership * * * may have income from its
$30,600 Unit operations, for illustration purposes, the
figures below do not take into account any
income and assume a 50% tax bracket taxpayer.
The [IRS] may disallow any of the various
elements used in calculating Partnership
expenses and credits thereby reducing federal
income tax benefits of an investment.
1983 1984
Capital Contribution $15,300 $15,300
Deductible Loss Equivalent $44,692 $47,520
Investment Ratio 2.9 to 1 3.1 to 1
The memorandum goes to describe the risks associated with MSA,
including 5 pages dedicated to the tax risks alone. Included as
part of the memorandum is an appraisal by McGraw-Hill Information
Systems Company (McGraw-Hill) which determined the fair market
value of the tapes to be $877,663.
Petitioner invested $61,200 in MSA during 1983 and signed a
promissory note for $61,200 due in 1984. Shortly thereafter, he
began to have misgivings regarding the partnership. In January
1984, when petitioner received a second invoice in the amount of
$5,000 from Geldbach for services to be rendered, he expressed
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