- 39 -
comparison." Alter did not hire an expert to value the Sentinel
EPE recycler, and he knew that Feinstein and Lauren had not made
a judgment as to the value of the machine.
Feinstein's investigation of the Plastics Recycling
transactions was similarly limited. He spoke with Lauren, who
may have had some insight into plastics materials, but Feinstein
only asked Lauren about PI's reputation. Feinstein did not
provide Lauren with a copy of an offering memorandum, or ask him
about the prospects for a Sentinel EPE recycler, or inquire as to
whether there were any competing machines already on the market.
He accepted the purported value of the Sentinel EPE recycler
after speaking with a friend and associate "about pricing and how
things are priced in * * * [the plastics] industry." The friend
and associate--unidentified by Feinstein--did nothing more than
confirm that the stream-of-income method of valuation was
commonly used. Feinstein did not verify any of the underlying
assumptions upon which the income projections in the offering
materials were based.
Neither Feinstein nor Lauren visited PI to see a Sentinel
EPE recycler, or investigated whether competitive machines
existed, or made a judgment as to the value of the machine.
Feinstein testified that he had telephone conversations with
Winer, but Feinstein did not explain the substance of Winer's
comments. See Howard v. Commissioner, 931 F.2d 578, 582 (9th
Cir. 1991), affg. T.C. Memo. 1988-531; Patin v. Commissioner, 88
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