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of Hilltop were all listed as certified public accountants with
expertise in the tax field. The private placement memorandum
listed no experience of any of the officer/directors or
shareholders which is relevant to the farming of jojoba.
The private placement memorandum contained language
specifically alerting investors to the planned deduction of the
“research and development” costs, as well as other tax risks
involved in making an investment in the partnership. The
document also contained an opinion letter stating that the
research and development agreement contained therein met the
requirements of section 174. Potential investors were required
to provide information concerning any previous experience in tax
shelter investments, and the subscription agreement required
investors to initial a statement that the investor had been
advised to consult with an attorney concerning the tax
consequences of the investment.
Several weeks after meeting with Mr. Peterson, Mr. Harvey
decided to invest in the partnership. Mr. Harvey made his
investment because he felt he had insider knowledge concerning
jojoba and because he thought demand for the product was
sufficient to meet a larger supply. Petitioner did not research
the possible yield per acre of a jojoba plantation, did not
analyze production costs, did not independently investigate the
available markets or means of transporting the jojoba to
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Last modified: May 25, 2011