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price of the beans was continuing to increase, and that it was an
excellent long-term investment. Petitioner believed that income
would come from the production of the jojoba beans and from
research and development royalties.
Petitioner talked to his certified public accountant Fred
Schutz (Mr. Schutz) about the Utah I investment. Petitioner did
not know whether he provided Mr. Schutz with a copy of the
private placement memorandum. Mr. Schutz reviewed the investment
and concluded there was nothing wrong with it from a tax
standpoint. Mr. Schutz prepared petitioners' 1982 tax return.
Petitioners decided to invest in Utah I. In 1982, they paid
$10,000 and gave a promissory note to the partnership. Based on
their $10,000 “investment”, petitioners deducted a $20,919 loss
on their Federal tax return in the same year.
Over time, petitioners completely paid off their promissory
note to Utah I. In 1989, when petitioners knew CFS was in
bankruptcy, CFS sent out a letter asking for the partners to pay
their last payments. Petitioners paid Utah I a total of $23,000.
Petitioners lost over $100,000 when Utah I and their other CFS
investments went under.
On their joint 1982 Federal income tax return, petitioners
reported wages from petitioner's medical practice of $129,260 and
wages from Mrs. Kessel's job of $30,045. They also deducted
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