- 53 -
Moreover, the records indicate that petitioners did not
thoroughly review the offering memoranda, which included the tax
opinion letter, or place much reliance on them. Spears testified
that he relied more on Becker than the offering materials.
Farrell described private placement memoranda as "the legal
documentation necessary to cover one in case things go bad" and
finds that they do not "lead * * * to an understanding of the
merits of [an] investment". He also testified that he does not
place undue influence on them and has never made a decision to
invest based upon one. Petitioners will not be relieved of the
negligence additions to tax based upon the Ninth Circuit Court of
Appeals' partial reversal in the Balboa Energy Fund 1981 case.
4. Miscellaneous
The parties in these consolidated cases stipulated that the
fair market value of a Sentinel EPE recycler in 1981 and 1982 was
not in excess of $50,000. Notwithstanding this concession,
petitioners contend that they were reasonable in claiming credits
on their Federal income tax returns based upon each recycler
having a value of $1,162,666. In support of this position,
Spears submitted into evidence preliminary reports prepared for
respondent by Ernest D. Carmagnola (Carmagnola), the president of
Professional Plastic Associates. Carmagnola had been retained by
the IRS in 1984 to evaluate the Sentinel EPE and EPS recyclers in
light of what he described as "the fantastic values placed on the
[recyclers] by the owners." Based on limited information
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