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expenditures under section 174, which, it expected, would
generate tax benefits for its investors.
Mr. Myers, but not petitioner, attended Mr. Matsuda’s
seminar on Jojoba and received a private placement memorandum
(PPM) in connection with a prospective investment in Jojoba.
Petitioner did not examine the PPM until after Mr. Myers’s death
in 1984. The PPM, dated October 28, 1982, stated: “THIS
OFFERING INVOLVES A HIGH DEGREE OF RISK”. The PPM also stated:
PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO
CONSTRUE THIS MEMORANDUM OR ANY PRIOR OR SUBSEQUENT
COMMUNICATIONS AS CONSTITUTING LEGAL OR TAX ADVICE.
* * * INVESTORS ARE URGED TO CONSULT THEIR OWN COUNSEL
AS TO ALL MATTERS CONCERNING THIS INVESTMENT.
PRIOR TO THE SALE OF ANY UNITS, EACH PURCHASER
AND/OR HIS OFFEREE REPRESENTATIVE SHALL HAVE THE
OPPORTUNITY TO ASK QUESTIONS OF THE GENERAL PARTNER
CONCERNING ANY ASPECT OF THE INVESTMENT DESCRIBED
HEREIN. EACH INVESTOR MAY OBTAIN ANY ADDITIONAL
INFORMATION NECESSARY TO VERIFY THE ACCURACY OF THE
INFORMATION CONTAINED IN THIS MEMORANDUM TO THE EXTENT
THAT THE GENERAL PARTNER POSSESSES SUCH INFORMATION OR
CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE.
* * * * * * *
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE
INTENDED OR SHOULD BE INFERRED WITH RESPECT TO THE
ECONOMIC RETURN OR TAX ADVANTAGES WHICH MAY ACCRUE TO
THE INVESTORS IN THE UNITS.
EACH PURCHASER OF UNITS HEREIN SHOULD AND IS
EXPECTED TO CONSULT WITH HIS OWN TAX ADVISOR AS TO THE
TAX ASPECTS.
In addition to the general warnings, the PPM described the risk
factors with respect to the projected Federal income tax
consequences of an investment in Jojoba as follows:
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