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unfavorable to petitioners. See Wichita Terminal Elevator Co. v.
Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th
Cir. 1947).
2. Petitioners’ Purported Profit Motive
In these cases, petitioners also contend that they were not
negligent because they invested in Masters for economic profits
and as a source of income for retirement. Keith and Warren each
had an extensive business background and had enjoyed a successful
career in his respective field. Moreover, Keith and Warren each
had been the head of a large company and each had experience with
complex financial decisions. Keith and Warren read Hamilton’s
offering memorandum, which was substantially identical to
Masters’ offering memorandum. The offering memorandum
specifically warned potential investors of significant business
and tax risks associated with investing in these types of
partnerships. The offering memorandum also warned potential
investors that the value of the recyclers might be challenged by
the IRS, a practice often followed by the IRS in transactions it
deems to be tax shelters. Nevertheless, petitioners disregarded
these warnings and failed to consult any independent advisers
with expertise in plastics or plastics recycling. Petitioners
also failed to conduct a reasonable independent investigation
into the market value of the recyclers or any of the other
economics of the Masters’ transaction. Moreover, Grande
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