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Frank Pettisani's note obligations incurred to finance his
participation in MIT 82 for the years 1983 through 1987,
respectively. Respondent has disallowed these deductions.
MIT 82 journal entries indicate that, on December 31, 1987,
MIT 82 distributed its $190,000 line-of-credit note from BBPA to
the partners, who in turn endorsed it to MPC for credit against
their notes, originally made to Machise.
The following illustration depicts the purported
transactions and flows of funds to which MIT 82 was a party.
Purported Transactions--MIT 82
A. Investment Phase
1. Partners issue $3,075,000 in 10-percent notes to Machise,
representing ten-elevenths of MIT 82's capital.
2. Machise lends $3,075,000 to investors in MIT 82,
represented only by journal entries.
3. The MIT 82 partners advance $3,075,000 to MIT 82,
represented by their subscription agreements.
4. Pursuant to the employee leasing agreement, MIT 82
advances $3,075,000 to Machise, represented only by
journal entries.
5. In addition to long-term notes, during 1982 partners
invest cash of $174,000 plus other assets.
6. During 1982, BBPA takes $190,000 from the partners'
cash investment account pursuant to a line-of-credit
note with MIT 82.
7. During 1982, BBPA advances $114,000 of this cash to
Machise.
B. Payroll Phase
8. During 1982, Machise makes weekly transfers totaling
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