- 20 -
hour and the Sentinel EPS recycler could process between 100 and
200 pounds of plastic per hour.
Lindstrom observed a Sentinel EPE recycler in operation at
PI, and he was allowed to take photographs of the recycler and
look at its blueprints. Based on his observations and study,
Lindstrom estimated the manufacturing cost of the Sentinel EPE
recycler to be approximately $20,000. Lindstrom concluded that
the market value of the Sentinel EPE recycler did not exceed
$50,000.
Lindstrom observed a Sentinel EPS recycler in operation and
was allowed to inspect the machine closely. Lindstrom estimated
the manufacturing cost of the Sentinel EPS recycler to be
approximately $20,000 and market value of the machine to be
approximately $25,000.
D. Petitioner's Federal Income Tax Returns
On his 1989 and 1990 individual income tax returns (Forms
1040), petitioner claimed that his Sentinel EPE recycler had a
basis of $1,162,667, and that his Sentinel EPS recyclers had an
aggregate basis of $3,500,000. Also on his 1989 and 1990
returns, petitioner claimed a depreciation deduction (and a net
loss) in the amount of $89,842 per year with respect to his
Sentinel EPE recycler.6 Finally, petitioner claimed net
6 Petitioner did not claim any depreciation deductions for
his Sentinel EPS recyclers on his 1989 and 1990 returns because
he had fully depreciated those recyclers on his returns for prior
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