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1992-177. Rather, the promoters were free to assign arbitrarily
a value to the recyclers to be used for the Plastics Recycling
transactions.
The circular nature of the transaction offered an
opportunity for abuse. With the exception of a minimal
downpayment for the machines, the majority of the purchase price
was in the form of a series of offsetting payments realized only
through bookkeeping entries, there being no disincentive for the
promoters to exaggerate the value of the recyclers. To the
contrary, the high price of the machines assured high tax write-
offs and was sure to attract investors for that very reason.
In fact, we are convinced that petitioners’ investment in
Clearwater was purely tax driven. The Clearwater offering
memorandum emphasized projected tax savings. For the year in
issue, for each $50,000 invested, the purchaser was projected to
receive $86,328 in investment and energy tax credits and $39,399
in tax deductions. Petitioners claimed a reduction of taxes in
the year of investment of over twice the amount of their
investment. “A reasonably prudent person would have asked a
qualified tax adviser if this windfall were not too good to be
true.” Provizer v. Commissioner, supra; see McCrary v.
Commissioner, 92 T.C. 827 (1989). Petitioners did not act
reasonably in claiming those benefits on their tax return without
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