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explanation of how he arrived at these estimates. We are unable
to determine from the record whether petitioner’s estimates were
reasonable under the circumstances.
Petitioner also argues that the cost per recycler was
reasonable based on his examination of the recyclers’ design and
“the process as a whole”. However, petitioner did not visit PI,
he did not inspect a recycler, and he did not observe the
recycling process before making his investment in Madison or
filing his 1982 return. Although petitioner claimed that he
requested a copy of the recycler manual, petitioner did not
introduce any evidence that he actually received or reviewed the
manual before making his investment. Petitioner also admitted he
had difficulty ascertaining the actual value of the recycler.
Even if we accept petitioner’s assertion that he had the
requisite education and experience to conduct a reasonable
evaluation of the Madison recyclers and the recyling process,
petitioner has not established that he had the factual
information necessary to evaluate the recyclers’ design or the
merits of the recycling process as a whole.
Petitioner’s argument is also based on a faulty premise. In
Merino v. Commissioner, T.C. Memo. 1997-385, we rejected the
valuation of a recycler in the context of the “overall system” as
unreasonable because it assumed that the underlying sham
transaction was valid. Like the taxpayer in Merino, petitioner
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