- 65 -- 65 -
subject machines--modified copiers--performed adequately on a
demonstration basis, prolonged use was mechanically
impracticable. Under "the somewhat unique circumstances of
[that] case," we found no basis for the negligence addition to
tax. The taxpayers had seen the equipment demonstrated and had
no reason to suspect that the scheme was fraudulent. They and
their accountant/adviser were in general aware of the cost of
ordinary office copy machine equipment, and the modified machines
were not priced disproportionately higher than first class copy
machine equipment. At the behest of one of the taxpayers, a
securities broker contacted an IRS representative and was told
that he saw no problem with the investment. Also, a revenue
agent told the accountant that the venture sounded good and that
he might be interested in investing himself; and at least some of
the taxpayers were told that the IRS had looked at the shelter
and found it legitimate. In addition, the accountant or his son
told the taxpayers that the machine was unique and had been
patented.
In contrast, the Sentinel EPE recycler was priced
disproportionately higher than other plastics recycling machines
on the market, a fact that should not have eluded a serious
investigation by petitioners or their purported advisers.13 None
13 The Fredericks stipulated that information published prior
to the Plastics Recycling transactions indicated that several
machines capable of densifying low density materials were already
on the market.
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