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Blount acquired a 2.605-percent interest in Phoenix for a
gross investment of $25,000 in 1981, without taking into
consideration any sales commission rebate or advance royalty
distribution. As a result of his investment in Phoenix, on his
1981 Federal income tax return Blount claimed an operating loss
in the amount of $20,520 and investment tax and business energy
credits totaling $42,402. Respondent disallowed Blount's claimed
operating loss and credits related to his investment in Phoenix.
Blount learned of the Plastics Recycling transactions and
Phoenix in 1981 from William Sprague (Sprague), a former
colleague at Andersen who had been introduced to the transactions
by Leicht. Sprague joined Andersen in 1935, became a C.P.A. in
1938 (receiving the silver medal for the second highest grade on
the examination), and had been a partner at Andersen for
approximately 20 years when he retired in 1973. His work at
Andersen was primarily in the area of auditing and administrative
functions within the firm. Sprague knew Leicht because the
latter also worked for Andersen, specifically from 1974 through
1980, and the two occasionally had lunch together. Leicht was
working at Becker Co. in late 1981 when he suggested to Sprague
that he look at some of the potential investments that passed
through Becker Co. Sprague was familiar with Becker Co., and he
knew Becker personally since both had been involved with the New
York State Society of C.P.A.'s.
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