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prospectuses 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. The preface to each
memorandum contained the following: NO OFFEREE SHOULD CONSIDER
THE CONTENTS OF THIS MEMORANDUM *** AS *** EXPERT ADVICE. EACH
OFFEREE SHOULD CONSULT HIS OWN PROFESSIONAL ADVISERS AS TO LEGAL,
TAX, ACCOUNTING AND OTHER MATTERS RELATING TO ANY PURCHASE BY HIM
OF UNITS. Each of the memoranda also clearly stated that the
respective Partnership transactions involved significant tax
risks and that in all likelihood the IRS would challenge the
transactions. In a "business risks" section, each warned that
there was no history for the subject partnership and no
established market for the recyclers or the pellets. It is clear
from the records that none of petitioners carefully considered
the offering memoranda.
On their face, the Partnership transactions should have
raised serious questions in the minds of ordinarily prudent
investors. According to the offering memoranda, the projected
benefits for taxable year 1981 were, for each $50,000 investor:
(1) Investment tax credits of $82,639 plus deductions of $39,323
(for investors in Scarborough) or $40,376 (for investors in
Plymouth), all in the initial year of investment. In the first
year of the investments alone, petitioners claimed the following
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