Jeffrey I. and Roberta H. Stone - Page 25

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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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