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would have become skeptical of the manner in which payments for
the recycler were to be made through a complex series of
offsetting payments. Petitioners would also have inquired why
the partnership would be willing to “invest” in machines at far
in excess of their fair market value when it could invest in
other much less expensive machines performing virtually the same
functions as the EPE recyclers. Inquiry may also have spurred
petitioners to take more seriously the tax and business warnings
in the offering memorandum which, for the most part, petitioners
cavalierly dismissed as overly cautious and boilerplate.
Petitioners claim that petitioner closely studied the
Clearwater offering memorandum and was aware of the nature of the
transaction. What petitioner should have realized, or what an
independent expert would have told him, is that the Sentinel EPE
recyclers were not offered to the general public, and therefore
the $1,162,667 pricetag did not result from traditional supply
and demand pricing. See Provizer v. Commissioner, T.C. Memo.
4(...continued)
recyclers were highly overvalued. For example, the Sentinel
recyclers were not unique. Respondent's experts identified other
machines that were not only functionally equivalent to the
Sentinel recyclers but that were also significantly less
expensive. We have found that information regarding comparable,
less expensive recyclers was widely available. If a potential
purchaser, especially a sophisticated one, had conducted a due
diligence investigation into the Sentinel EPE recyclers, such
potential purchaser should have learned that comparable, less
expensive equipment existed and that the Sentinel EPE recyclers
were overvalued.
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