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warnings that PI had no experience in manufacturing or operating
the recyclers and Mr. Roberts’s statement that PI had been
running the recyclers for some time. Although this inconsistency
should have alerted petitioner that further investigation was
warranted, he did not investigate further. Petitioner also
failed to show that his efforts to evaluate the economics of the
Madison transaction were reasonable or that he relied on
reasonable assumptions.21 An examination of petitioner’s
arguments in relationship to the record in this case demonstrates
why.
Although petitioner testified that, in addition to his
reliance on the POM, he made his own more “conservative
estimates” in performing his economic analysis, he provided no
21For example, petitioner argued that the “so-called oil
crisis” of the late 1970s and early 1980s provided the historical
backdrop for his investment in Madison and that his calculations
were dependent on his assumption that the price of polystyrene
and oil were connected and that the price of oil would rise. The
argument that it was reasonable for a taxpayer to invest in a
plastics recycling partnership because of the “so-called oil
crisis” and the belief that the price of plastic would increase
because it is an oil derivative has been made in more than 20
Plastics Recycling cases. See, e.g., Ferraro v. Commissioner,
T.C. Memo. 1999-324; Merino v. Commissioner, T.C. Memo. 1997-385;
Singer v. Commissioner, T.C. Memo. 1997-325; Sann v.
Commissioner, T.C. Memo. 1997-259, affd. sub nom. Addington v.
Commissioner, 205 F.3d 54 (2d Cir. 2000). We have found this
argument unpersuasive in every one of these cases. The Court of
Appeals for the Third Circuit also has rejected the argument as
unpersuasive. Merino v. Commissioner, 196 F.3d 147 (3d Cir.
1999). Petitioner’s argument is substantially the same as that
rejected in the above-cited cases and does not provide a
reasonable basis for petitioner’s analysis or for his investment
in Madison.
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