-5-
letter that was attached to the memorandum, informed a potential
investor that the Internal Revenue Service (IRS) had been
conducting a “tax shelter program” to identify and examine
“abusive” tax shelters and that such a program “increases the
likelihood that the Partnership’s and a Partner’s return may be
audited.” The private placement memorandum also informed the
reader that the depreciation deductions and investment tax credit
that the partnership intended to claim and pass through to its
partners would be based on a fair market value of each master video
disk of $877,663, and that there was no assurance “that the Masters
could be sold for the appraised value or that the lease fee program
will provide the Partnership with a fair return on equity.”
Petitioner discussed the possibility of purchasing an interest
in the partnership with Freasier. Petitioner knew that acquiring
an interest in the partnership would provide him with immediate and
future tax advantages. In particular, he understood that he would
receive tax benefits of up to $3.80 for each $1 invested.
After petitioner became a limited partner in the partnership,
the partnership’s tax return was audited by the IRS. As a result
of this audit, on February 27, 1987, the IRS sent petitioners, and
other partners in the partnership, a notice of final partnership
administrative adjustment (FPAA) for 1982 and 1983. The
partnership's tax matters partner thereafter filed a petition in
this Court to contest the adjustments contained in the FPAA.
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