Joe E. Henry and Carolyn J.Henry - Page 16

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               Reliance on representations by insiders, promoters, or                 
          offering materials has been held an inadequate defense to                   
          negligence.  Goldman v. Commissioner, supra; LaVerne v.                     
          Commissioner, 94 T.C. 637, 652-653 (1990), affd. without                    
          published opinion 956 F.2d 274 (9th Cir. 1992), affd. without               
          published opinion sub nom. Cowles v. Commissioner, 949 F.2d 401             
          (10th Cir. 1991).  Pleas of reliance have been rejected when                
          neither the taxpayer nor the advisers purportedly relied upon by            
          the taxpayer knew anything about the nontax business aspects of             
          the contemplated venture.  Freytag v. Commissioner, supra; Beck             
          v. Commissioner, 85 T.C. 557 (1985).                                        
               The offering memorandum contains a description of various              
          business and tax risks associated with an investment in Sunbelt.            
          Despite a review of the offering memorandum and skepticism of its           
          contents, Storey made no effort to verify the information in the            
          offering memorandum beyond visiting PI's facilities and                     
          contacting Miller, Bambara, Taggart, Giovannone, and Winer, all             
          of whom are insiders and promoters associated with Sunbelt.                 
          Despite his lack of knowledge regarding the recycler, the target            
          market for the recycler, and the technical aspects of the                   
          transactions, Storey did not contact an expert in plastics                  
          recycling or engineering or recommend that petitioner do so.                
               Although Storey visited the PI plant in Hyannis, toured the            
          facility, and observed a demonstration of the recycler, he was              
          not qualified to analyze or assess the machines on display or the           




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