- 42 -
whose reports were appended to each of the offering memoranda
each owned interests in partnerships which leased Sentinel EPE
recyclers. The offering memoranda contained numerous caveats,
including the following: NO OFFEREE SHOULD CONSIDER THE CONTENTS
OF THIS MEMORANDUM *** AS *** EXPERT ADVICE. *** EACH OFFEREE
SHOULD CONSULT HIS OWN PROFESSIONAL ADVISERS. Petitioners did
not see a Sentinel EPE recycler prior to investing in Northeast
or Hyannis, nor did they independently investigate the recyclers.
They only went so far as to have an accountant and two bond
dealers, all lacking any training or experience in plastics or
recycling, look at the machines and the factory which produced
them. In effect, petitioners went so far as to find out whether
some sort of machine existed and not much farther.
Petitioners' reliance on Krause v. Commissioner, supra,
Rousseau v. United States, supra, and Mauerman v. Commissioner,
supra, in support of their contentions that they acted
reasonably, is misplaced. In the Krause and Rousseau cases, the
section 6659 addition to tax was disallowed in light of the
respective holdings that the taxpayers in each case had a
reasonable basis for the valuations claimed on the tax returns or
had reasonable cause for the understatements on the returns and
were not subject to negligence additions to tax. In contrast, we
have held that petitioners herein did not act reasonably in
claiming deductions and investment tax credits related to the
Partnerships, that the errors on petitioners' tax returns were
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