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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
believes it is entitled to claim. There can be no
assurance that these deductions may not be contested or
disallowed by the Service * * * . Such areas of
challenge may include * * * expenditures under the R &
D Contract * * * .
* * * * * * *
The Service is presently vigorously auditing
partnerships, scrutinizing in particular certain
claimed tax deductions. * * * Counsel’s opinion is
rendered as of the date hereof based upon the
representations of the General Partner * * * . Counsel
shall not review the Partnership’s tax returns. * * *
(d) Deductibility of Research or Experimental
Expenditures.
The General Partner anticipates that a substantial
portion of the capital contributions of the Limited
Partners to the Partnership will be used for research
and experimental expenditures of the type generally
covered by Sections 174 and 44F of the Code
(particularly in recently issued IRS regulations issued
thereunder). However, prospective investors should be
aware that there is little published authority dealing
with the specific types of expenditures which will
qualify as research or experimental expenditures within
the meaning of Section 174, and most of the
expenditures contemplated by the Partnership have not
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