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Kellen testified that passage of the Tax Reform Act of 1986,
which required passive investors to capitalize all preproduction
costs, ultimately contributed to the failure of Utah I. Kellen
explained that "with the collapse, basically, of the tax
incentive for doing jojoba, we had to then go into some type of
other mode of operation to see if we couldn't make the venture
profitable." In October 1991, Utah I was consolidated with 36
other limited partnerships under contract with U.S. Agri into one
large limited partnership, Jojoba Plantation Ltd. The general
partners of the 37 limited partnerships believed that by
combining resources they could reduce costs and enable their
jojoba farming ventures to become profitable. At the time of the
trial of this case, Jojoba Plantation Ltd. was in chapter 7
bankruptcy.
a. The Private Placement Memorandum
Coordinated Financial Services (CFS) prepared the private
placement memorandum (the offering) and all other organizational
and contractual documents for Utah I, including the R&D agreement
and the license agreement. Although Kellen, as general partner
of Utah I, properly executed the documents, he claims that he did
not carefully review any of the documents prepared by CFS before
subscriptions were taken for Utah I. The offering, dated
November 10, 1982, provided for a maximum capitalization of
$2,968,000 consisting of 350 limited partnership units, at $8,480
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