- 26 -
The Stones placed into the record of their case several
documents, ostensibly submitted as evidence that they monitored
their investments in Northeast. These included unaudited
financial statements of Northeast prepared by nonindependent
accountants from 1981 to 1985, Forms K-1 from 1984 and 1986, a
1983 report prepared by Finkle & Co. describing the accounting
procedures and controls for the recycling operations at PI, and a
1983 update from PI noting that "market prices for polyethylene
resin have remained relatively low * * * [and] the Sentinel
recyclers * * * have not been profitable." Stone did not testify
or otherwise indicate that he ever examined these documents. He
spoke to Roberts once about the performance of the Northeast
partnership and learned that it was experiencing difficulty
placing the machines. We decline to infer from these documents
that he actively monitored his investment in Northeast.
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's
having a value of $1,066,666 in the Hyannis partnership and
$1,162,666 in the Northeast partnership.11 In support of this
11 The Hyannis partnership involved 6 machines on which the
partnership set a value of $6,400,000. The Northeast partnership
involved 7 machines on which the partnership set a value of
$8,138,667.
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