- 22 -
the contemplated venture. See David v. Commissioner, supra;
Freytag v. Commissioner, supra.
The purported value of the recyclers generated the
deductions and credits.6 This circumstance was clearly reflected
in the offering memorandum. Although petitioner was given a copy
of the offering memorandum, petitioner chose not to read it.
Instead, he exclusively relied on representations made by
Clothier. In his discussions with petitioner about Whitman,
Clothier emphasized the tax benefits that petitioner would enjoy
if he made the investment. The offering memorandum prominently
announced that an investment of $50,000 in Whitman would produce
approximately $77,000 in immediate investment and energy tax
credits. Petitioners’ investment of $25,000 produced for them
tax credits totaling $38,763. Like the taxpayers in Provizer v.
Commissioner, T.C. Memo. 1992-177, “except for a few weeks at the
beginning, petitioners never had any money in the deal.” Under
these circumstances, a reasonably prudent person would have asked
a qualified adviser if such a windfall were not too good to be
true. See McCrary v. Commissioner, 92 T.C. 827, 850 (1989).
In support of their claim that their reliance on Clothier
6On its 1982 tax return, Whitman reported that each of the
four recyclers had a basis of $1,750,000. In Provizer v.
Commissioner, T.C. Memo. 1992-177, affd. per curiam without
published opinion 996 F.2d 1216 (6th Cir. 1993), the test cases
for the Plastics Recycling group of cases, this Court found that
each recycler had a fair market value of not more than $50,000.
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