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The offering memorandum lists significant business and tax
risk factors associated with an investment in Resource.
Specifically, the offering memorandum states: (1) There is a
substantial likelihood of audit by the Internal Revenue Service
(IRS), and the purchase price paid by F & G Corp. to ECI Corp.
probably will be challenged as being in excess of fair market
value; (2) Resource has no prior operating history; (3) the
general partner has no prior experience in marketing recycling or
similar equipment; (4) the limited partners have no control over
the conduct of Resource's business; (5) there is no established
market for the Sentinel EPE recyclers; (6) there are no
assurances that market prices for virgin resin will remain at
their current costs per pound or that the recycled pellets will
be as marketable as virgin pellets; and (7) certain potential
conflicts of interest exist.
Although the offering memorandum represented that the
Sentinel EPE recycler was a unique machine, it was not. Several
machines capable of densifying low-density materials were already
on the market in 1981. Other plastics recycling machines
available during 1981 ranged in price from $20,000 to $200,000,
including the Foremost Densilator, Nelmor/Weiss Densification
System (Regenolux), Buss-Condux Plastcompactor, and Cumberland
Granulator. See Provizer v. Commissioner, T.C. Memo. 1992-177.
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