Jeffrey I. and Roberta H. Stone - Page 27

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          position, petitioners 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 available to him at that time, Carmagnola               
          preliminarily estimated that the value of the Sentinel EPE                  
          recycler was $250,000.  However, after additional information               
          became available to him, Carmagnola concluded in a signed                   
          affidavit, dated March 16, 1993, that the machines actually had a           
          fair market value of not more than $50,000 each in the fall of              
          1981 and 1982.                                                              
               We accord no weight to the Carmagnola reports submitted by             
          petitioners.  The projected valuations therein were based on                
          inadequate information,12 research, and investigation, and were             
          subsequently rejected and discredited by their author.                      
          Respondent likewise rejected the reports and considered them                
          unsatisfactory for any purpose, and there is no indication in the           
          records that respondent used them as a basis for any                        

          12   In one preliminary report, Carmagnola states that he has "a            
          serious concern of actual profit-level" of a Sentinel EPE                   
          recycler and that to determine whether the machines actually                
          could be profitable, he required additional information from PI.            
          Carmagnola also indicates that in preparing the report, he did              
          not have information available concerning research and                      
          development costs of the machines and that he estimated those               
          costs in his valuations of the machines.                                    

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