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Petitioner contends that his continued monitoring of his
investment and the subsequent litigation against Geldbach and
McGraw-Hill demonstrate that he had a bona fide profit motive in
investing in MSA. However, much of the correspondence received
by petitioner in response to his concerns primarily addressed the
validity of the tax benefits of the partnership, not the income
potential. In addition, petitioner made a second investment in
MSA during 1984, well after he began to have serious doubts about
MSA and its ability to withstand an audit by the Internal Revenue
Service. Petitioners filed their 1983 Federal income tax return
in October 1984, wherein they claimed their distributive share of
partnership losses and credits, well after both they and Andrews
voiced concerns about the credibility of the investment.
We are not persuaded that petitioner lacked interest in the
tax benefits generated by MSA. He testified that he was seeking
an investment that provided initial tax benefits. According to
the memorandum, the projected benefits for investors of $30,600
were investment tax credits and losses exceeding the investment
by a ratio of 2.9 to 1 in 1983, and 3.1 to 1 in 1984. In the
first year, petitioners claimed an operating loss in the amount
of $35,539 and credits totaling $79,441, while petitioners'
investment was only $61,200. The direct reductions in
petitioners' Federal income tax equaled 188 percent of their cash
investment. Given that petitioners' gross income for 1983
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