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During 1982, Mr. Sheets approached petitioner about
investing in Blythe II, which was being promoted as an
agricultural research and development partnership. Blythe II was
the first agricultural type investment opportunity that had been
proposed by Mr. Sheets for consideration by petitioner. Mr.
Sheets provided petitioner with a fairly voluminous private
placement memorandum2 (the offering), which described the
proposed investment in and the activities to be conducted through
Blythe II. Petitioner reviewed the document and then passed
along the offering to his certified public accountant, Clarence
Hulse (Mr. Hulse), who routinely reviewed petitioner's other
investment opportunities. After perusing the offering, Mr. Hulse
advised petitioner that the "risk reward" appeared to justify an
investment in Blythe II. Petitioner did not consult an attorney
or any independent expert in the area of agriculture or jojoba
plants regarding whether jojoba oil or any other jojoba
derivative had a potentially lucrative commercial market.
Petitioners, nevertheless, invested in Blythe II.
On their joint 1982 Federal income tax return, petitioners
reported wages of $506,767.52 from petitioner's medical practice,
interest income of $46,572.78, taxable dividend income of
$712.30, capital gains of $56,589.02, and other income of
2 The private placement memorandum consisted of some 47
pages, plus eight exhibits, and a table of contents.
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