- 34 -
cash in full in 1982. Others paid part, or none at all. Some of
the amounts not paid were eliminated by offsetting journal
entries, reflecting an apparent decision by BBPA not to attempt
to collect the unpaid amounts.
In order to obtain access to this cash, Bruce executed a
"line-of-credit" note, dated January 1, 1982, from BBPA to MIT
82, whereby BBPA could borrow up to $300,000 from MIT 82 at a 15-
percent interest rate. If BBPA borrowed this amount, it would
owe $45,000 annually to MIT 82 as interest. Fred intended that
this interest would be offset by the $45,000 management fee that
MIT 82 owed to BBPA. During the time the line-of-credit note was
outstanding, the annual interest (owed to MIT 82) was $28,500, or
15 percent of the $190,000 borrowed by BBPA under the line-of-
credit note. BBPA accordingly lowered its management fee to
$28,500, in order to offset exactly the interest owed by MIT 82.
On the same date, Machise executed a separate line-of-credit
note to BBPA, whereby it could borrow up to $180,000 of the
partners’ cash investment from BBPA, at 7-1/2-percent interest.
During 1982, some $190,00011 of the investors' cash passed from
MIT 80 to BBPA. BBPA retained 40 percent of this amount, some
11BBPA's note indicates that it borrowed $190,000 at the end
of 1982, although the books maintained for MIT 82 reflect that
only a total of $174,000 in cash was paid in during 1982. It was
deposited into an account controlled by BBPA. The record also
indicates, however, that some investors transferred other
investment instruments or accounts receivable in lieu of cash for
purposes of meeting their cash requirements. The $190,000 figure
thus may reflect that some of these noncash assets were advanced
to BBPA.
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