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no analysis in the prospectus of the potential nontax, economic
profitability of the leasing program. Furthermore, there is no
information in the prospectus regarding the marketability of the
master recordings that Encore intends to lease nor any
information concerning how master recordings can be marketed.
Finally, the prospectus contains a letter from Henry D.
Nunez, a tax attorney, 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.
In light of the content of the Encore prospectus, we doubt
the sincerity of petitioners' contention that they examined its
pertinent parts. Even a simple review of the information
contained in the prospectus should have raised serious questions
in the minds of ordinarily prudent investors.
Based upon careful consideration of the record, we find that
petitioners have failed to show that the instant case differs in
any meaningful respect from the previously decided cases in which
we held the taxpayers liable for the additions to tax for
negligence in connection with their participation in Encore.
Accordingly, petitioners are liable for the additions to tax
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Last modified: May 25, 2011