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they reasonably relied upon the offering memoranda and the tax
opinion letter appended thereto. However, petitioners' testimony
and actions indicate that they did not thoroughly review or study
all of the information set out in the offering memoranda and that
they ultimately did not place a great deal of reliance, if any,
on the representations therein.
The offering memoranda included numerous caveats and
warnings with respect to the Partnerships, including: (1) The
substantial likelihood of audit by the IRS and a likely challenge
of the purported value of the recyclers; (2) the general
partners' lack of experience in marketing recycling or similar
equipment; (3) the lack of an established market for the
recyclers; and (4) uncertainties regarding the market prices for
virgin resin and the possibility that recycled pellets would not
be as marketable as virgin pellets. In addition, the offering
memoranda noted a number of conflicts of interest, including
Miller's interest in F & G Corp. and his representation of
Burstein, PI, and Grant. A careful consideration of the
materials in the offering memoranda in these cases, especially
the discussions of high writeoffs and risk of audit, should have
alerted a prudent and reasonable investor to the questionable
nature of the promised deductions and credits. See Collins v.
Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988), affg. Dister
v. Commissioner, T.C. Memo. 1987-217; Sacks v. Commissioner,
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