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It is clear from the records that none of petitioners carefully
considered the risk factors mentioned in the offering memoranda.
On their face, the Partnership transactions should have
raised serious questions in the minds of ordinarily prudent
investors. According to the Northeast and Hyannis offering
memoranda, the projected benefits for taxable year 1981 were, for
each $50,000 investor, investment tax credits of $84,813 and
$79,200, respectively, plus deductions of $40,174 and $42,491,
respectively, all in the initial year of investment.10 In the
first year of the investments alone, the Stones and Cotes claimed
operating losses in the respective amounts of $20,340 and
$40,646, plus investment tax and business energy credits in the
respective amounts of $42,406 and $79,194 ($4,583 of which was
carried back to 1980). Therefore, like the taxpayers in Provizer
v. Commissioner, supra, except for a few weeks at the beginning,
none of petitioners ever had any money in the Partnerships. A
reasonably prudent person would not conclude without substantial
investigation that the Government was providing significant tax
benefits to taxpayers who took no business risk and made no
investment of their own capital. McCrary v. Commissioner, 92
T.C. 827, 850 (1989).
10 In both cases the parties stipulated that the offering
memoranda projected tax benefits of $86,328 in investment tax
credits and $39,399 in deductions. There is no explanation for
this discrepancy in the record.
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