- 35 -
been so naive if the Clearwater investment had not been driven by
the promise of large tax benefits. Second, there is no
explanation why the many caveats and warnings regarding the tax
and business risk factors detailed in the offering memorandum did
not alert petitioner to investigate the Clearwater investment in
more detail. The Clearwater private offering memorandum
contained cautionary language that was directed to the investor.
Petitioners have presented no reason for us to doubt that the
cautionary language meant what it said.
We therefore are not convinced of petitioner's professed
faith in the representations in the offering memorandum, which
was allegedly based on the concept that the securities laws
discourage false and misleading statements. Regardless of
whether petitioners have a cause of action under Federal or State
securities laws against Clearwater or any of its promoters,
petitioners were not relieved of the duty to conduct an
independent investigation of their investment before claiming tax
benefits therefrom. Under these circumstances, petitioner's
failure to look beyond the private offering memorandum and the
representations by Burstein and Ulanoff was unreasonable and not
in keeping with the standard of the ordinarily prudent person.
See Triemstra v. Commissioner, T.C. Memo. 1995-581; see also
LaVerne v. Commissioner, supra; Marine v. Commissioner, 92 T.C.
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