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unpaid portions of the compensation fee.
Thus, Machise was not required to, and did not, make any
payment of the "compensation fee" to MIT 82 during 1982. MIT 82,
under its cash method of accounting, accordingly reported a net
loss of $2,488,164. This loss was the excess of the $2,504,865
payroll costs and other expenses over reported partnership
interest income of $16,701.
Individual Petitioners' Deductions of Partnership Loss
On their individual income tax return for 1982, the Bealors
reported a loss of $80,915, representing their 3.252-percent
share of MIT 82's partnership loss. James Cameron reported the
same amount as his 3.252-percent share of those losses in his
1982 Federal income tax return. Frank Pettisani, in his 1983
return, reported a Schedule E loss of $161,830, representing his
6.504-percent share of MIT 82 losses. The other investors in MIT
82 also reported Schedule E partnership losses from MIT 82, in
proportion to their interests.
Respondent issued statutory notices of deficiency to the
named investors and the other investors, disallowing the claimed
MIT 82 losses for 1982.
Intercoastal's Deduction of Compensation Fee
For the 6-month period January 1, 1982, to the end of its
fiscal year on June 30, 1982, Machise/Intercoastal accrued and
deducted, as "rents" for Federal income tax purposes, $1,389,950
with respect to payroll costs. For the next 6-month period of
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