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of SAB Foam. SAB Management, Ltd. (SAB Management), a New York
corporation, was SAB Foam’s general partner, its tax matters
partner (TMP), and a 1-percent owner. The limited partners, or
investors, owned the remaining 99 percent of SAB Foam.
The memorandum informed investors that the business of SAB
Foam would be conducted in accordance with the transaction
described above. The memorandum warned potential investors of
significant business and tax risk factors associated with
investments in SAB Foam. The memorandum was replete with
warnings. In bold capital letters, the memorandum unequivocally
stated: “THIS OFFERING INVOLVES A HIGH DEGREE OF RISK”.
Specifically, the memorandum warned potential investors
that: (1) There was a substantial likelihood of audit by the
Internal Revenue Service (IRS); (2) “On audit, the purchase price
of the Sentinel EPS recyclers to be paid by F&G to ECI may be
challenged by the * * * [IRS] as being in excess of the fair
market value thereof, a practice followed by * * * [the IRS] in
transactions it deems to be ‘tax shelters’. Such purchase price
is the basis for computing the regular investment and energy tax
credits to be claimed by * * * [SAB Foam and ultimately by its
partners]”; (3) the partnership had no prior operating history;
(4) the general partner had limited experience in marketing
recycling or similar equipment; (5) the limited partners would
have no control over the conduct of the partnership’s business;
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Last modified: May 25, 2011