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subscription agreement, he believed that his investment in San
Nicholas offered tax benefits, and his decision to invest was
influenced, in part, by that belief.
Third, we do not think that petitioner, a sophisticated
investor, exercised due care at the time that he signed the
subscription agreement. In this regard we are again unable to
accept uncritically petitioners’ contention that petitioner
reasonably relied on the offering memorandum. The short answer to
this contention is that petitioner either did not read the
offering memorandum in its entirety or chose to ignore portions
thereof. See Goldman v. Commissioner, supra at 407-408, holding
that the taxpayer’s reliance on offering materials was not
reasonable; see also Pasternak v. Commissioner, 990 F.2d 893, 903
(6th Cir. 1993), affg. Donahue v. Commissioner, T.C. Memo. 1991-
181, holding that claims that are probably “too good to be true”
should be investigated by a reasonably prudent person.15
The offering memorandum was replete with caveats and warnings
regarding the business and tax risks associated with an investment
14(...continued)
Commissioner, 786 F.2d 1382, 1383-1384 (9th Cir. 1986), affg. in
part and remanding in part T.C. Memo. 1984-197; Niedringhaus v.
Commissioner, 99 T.C. 202, 212 (1992); Duralia v. Commissioner,
T.C. Memo. 1994-269; see also Tokarski v. Commissioner, 87 T.C.
74, 77 (1986).
15 In the present case, the parties stipulated to a
promotional videotape produced by U.S. Agri that described jojoba
as “liquid gold” and “the industrial crop of the future”, which
would be cultivated in “some of the most hostile land anywhere”.
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