- 35 -
question the promised tax benefits. We would certainly expect no
less from a well-educated and sophisticated individual such as
petitioner.
At the time that he invested in Dickinson, petitioner did
not have any education or work experience in either plastics
materials or plastics recycling, nor did petitioner have any
specialized knowledge about either the plastics industry in
general or the Sentinel EPS recycler in particular.
Nevertheless, petitioner did not make any independent
investigation of the fair market value of the recycler, nor did
he seek the advice of any expert in the plastics industry.
Rather, petitioner was content to rely on the offering
memorandum. However, “It is unreasonable for taxpayers to rely
on the advice of someone who they should know has a conflict of
interest.” Addington v. Commissioner, supra at 59; see Goldman
v. Commissioner, 39 F.3d at 406; LaVerne v. Commissioner, 94 T.C.
637, 652-653 (1990), affd. without published opinion 956 F.2d 274
(9th Cir. 1992), affd. in part without published opinion sub nom.
Cowles v. Commissioner, 949 F.2d 401 (10th Cir. 1991).
Aside from the cautionary language of the offering
memorandum, there were several factors that should have alerted
petitioner to the fact that the Sentinel EPS recyclers were
overvalued and that independent expert advice was therefore
required. Thus, for example, the exorbitant cost of the
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