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on the open market. See Provizer v. Commissioner, T.C. Memo.
1992-177. The lack of arm's-length negotiations in the open
market and the exorbitant cost of each Sentinel EPE recycler,
$1,162,667, should have caused petitioner to investigate the
investment independently.
We have found that an independent investigation would have
revealed the true nature of the Clearwater transactions as an
economic sham. Many factors were present to indicate that the
Sentinel EPE recyclers were highly overvalued. For instance, the
Sentinel EPE recyclers were not unique. Respondent's experts
identified other machines that were not only functionally
equivalent to the Sentinel EPE recyclers but were also
significantly less expensive. Information regarding comparable,
less expensive recyclers was widely available. If a potential
purchaser, especially a sophisticated individual such as
petitioner, had conducted a due diligence investigation of the
Sentinel EPE recyclers, such a potential purchaser would have
learned that comparable, less expensive equipment existed. Such
an investor would have concluded that the structure of the
Clearwater transactions, set up to take advantage of tax benefits
involving grossly overvalued equipment, constituted a sham.
In particular, petitioner was well positioned to recognize
the Clearwater transactions as an economic sham. Petitioner was
a sophisticated and well-educated attorney. Petitioner testified
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