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the petitioners. Prefatory material in the memorandum contained
the following caveats:
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.
* * * * * * *
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 a section entitled “Use of Proceeds”, an estimation of various
expenditures, the memorandum stated that 90.7 to 93.0 percent of
the capital contributions from the partners would be allocated to
the research and development contract (regardless of the total
amount of the contributions). The only other expenses were to be
organizational costs, legal fees, and commissions. One of the
“risk factors” listed for the investment contained the following
discussion:
Federal Income Tax Consequences: An investment in the
units involves material tax risks, some of which are set
forth below. Each prospective investor is urged to consult
his own tax advisor with respect to complex federal (as well
as state and local) income tax consequences of such an
investment.
* * * * * * *
(c) Validity of Tax Deductions and Allocations.
The Partnership will claim all deductions for
federal income tax purposes which it reasonably
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