- 42 -
the plastics recycling transaction was generally vague,
qualified, and unconvincing.
Friedman sought to establish that he monitored his
investment in Clearwater. He testified that he spoke to
Hirshfield and Trost on a number of occasions "about the progress
of the partnership". Friedman stated: "I believe that within
the first year or so, I received favorable reports that it was
doing well and the machines were doing well." In Provizer v.
Commissioner, supra, this Court found:
At no time were all six of the Sentinel EPE
Recyclers * * * leased by Clearwater placed with end-
users. * * * the recyclers were used infrequently and
they often were not in use at all. PI failed promptly
to pick up either the scrap or machines rejected by
prospective end-users, and at times did not pay the
end-user for the scrap that PI did pick up.
Friedman submitted into the record several updates regarding the
placement of the recyclers and the performance of Clearwater. A
May 19, 1982, update indicated that end-users had been found for
four recyclers. Financial statements for the years ended 1981
and 1982 showed that Clearwater was operating at a loss. In a
preface to the financial statements, the accounting firm that
prepared them, H. W. Freedman & Co., stated as follows:
The financial statements have been prepared on a basis
of accounting other than generally accepted accounting
principles * * *. The compilation is limited to
presenting in the form of financial statements
information that is the representation of the
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