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reasonably prudent person would have asked a qualified adviser
whether such a windfall were not “too good to be true.” See
McCrary v. Commissioner, 92 T.C. 827, 850 (1989).
The memorandum included numerous caveats and warnings
regarding the business and tax risks of SAB Foam. It stated that
the offering involved a high degree of risk and that each offeree
should consult his own professional advisers as to legal, tax,
accounting, and other matters relating to any purchase of any
units in the partnership. A careful consideration of the
memorandum, and the discussion of high writeoffs and risk of
audit, would have alerted a prudent investor to question the
nature of the promised tax benefits.
Moreover, the tax opinion made clear that there was no
independent evaluation of the SAB Foam transactions. The opinion
indicated that Boylan & Evans relied on the statements of the
general partner and “other statements of fact and opinion
furnished to us by persons familiar with the transaction
described in the Memorandum.” Boylan & Evans clearly based its
conclusion about the fair market value of the recyclers on the
assumption that the parties to the transactions had negotiated
prices at arm’s length. In light of the close relationships
existing among the parties to the SAB Foam transactions and the
enormous price paid for the recyclers (largely with nonrecourse
notes exchanged in a plainly circular transaction), petitioners
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