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In the late summer or early fall of 1982, petitioner’s
medical partner introduced petitioner to Gary Sheets (Sheets), an
aggressive tax shelter promoter from Salt Lake City, Utah, who
had induced a number of physicians practicing in the Las Vegas
area to purchase interests in tax-sheltered limited partnerships.
In late 1982 and in 1983, petitioners purchased interests in
a number of tax-sheltered limited partnerships that were being
promoted by Sheets. On the basis of those investments, on
petitioners’ 1982 and 1983 joint Federal income tax returns
petitioners claimed large paper tax losses that offset
significantly the reported income from petitioner’s medical
practice.
The particular investment that is relevant to the negligence
additions to tax at issue herein is Blythe Jojoba II Research,
Ltd. (Blythe II), a jojoba research and development partnership
promoted by Sheets.
In connection with their decision to invest in Blythe II,
petitioners obtained from Sheets a prospectus describing
Blythe II and containing the typical risk caveats associated with
tax-sheltered limited partnership investments of the early 1980s.
The prospectus alerted petitioners, as of 1982, to the lack of an
established market for jojoba, to the lack of processing
facilities for jojoba, to the high degree of risk associated with
investments in the partnership, and to the fact that investors
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