Joseph P. and Mary B. McDonald - Page 8




                                        - 7 -                                         
                    been the subject of any prior cases or administrative             
                    determinations.                                                   
                         There are various theories under which such                  
                    deductions might be disallowed or required to be                  
                    deferred. * * * No ruling by the Service has been or              
                    will be sought regarding deductibility of the proposed            
                    expenditures under Section 174 of the Code.                       
          A section entitled “Tax Aspects” contains the following                     
          information concerning a legal opinion from outside counsel                 
          obtained by the general partner:                                            
                    The General Partner has received an opinion of counsel            
               concerning certain of the tax aspects of this investment.              
               The opinion * * * is available from the General Partner.               
               Since the tax applications of an investment in the                     
               Partnership vary for each investor, neither the Partnership,           
               the General Partner nor counsel assumes any responsibility             
               for tax consequences of this transaction to an investor.               
               * * * The respective investors are urged to consult their              
               own tax advisers with respect to the tax implications of               
               this investment. * * *                                                 
               The opinion letter referenced in the private placement                 
          memorandum was one which purportedly had been written for Mr.               
          Cole by outside counsel based on information provided by Mr.                
          Cole.  The letter, dated December 7, 1983, concludes by stating             
          general caveats and disclaimers along with the opinion that “it             
          is more likely than not that a partner of Arid Land Research                
          Partners, a Limited Partnership will prevail on the merits of               
          each material tax issue presented herein.”  However, the                    
          conclusions regarding the issue of the section 174 deduction in             
          particular were vague and nonconclusive in nature.                          








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