Malcolm I. Lewin and Trina Lewin - Page 6

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          PI on the ECI note.  In connection with these arrangements by PI,           
          ECI, F&G, SAB Foam, and RRI, these monthly payments were                    
          offsetting, so they could be kept as bookkeeping entries with no            
          money actually changing hands.                                              
               On its 1982 Form 1065, U.S. Partnership Return of Income,              
          SAB Foam reported that the four recyclers had an aggregate basis            
          of $7 million, or $1,750,000 each, for purposes of the investment           
          and business energy tax credits.  In the present case, the                  
          undisputed evidence, including the stipulation of the parties,              
          establishes that the recyclers were not properly valued at                  
          $1,750,000 but instead had a maximum value of $30,000 to $50,000            
          each.  SAB Foam reported a net ordinary loss of $662,556.  SAB              
          Foam included the portion of credits and losses attributed to               
          petitioners on the Schedule K-1, Shareholder’s Share of Income,             
          Credits, Deductions, Etc., issued to petitioners and filed with             
          SAB Foam’s partnership tax return.                                          
          B.  Private Offering Memorandum                                             
               The private offering memorandum (memorandum) that generally            
          was distributed to potential investors contemplated the creation            
          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.                      

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