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which it called compensation fee income, and no expenses.
In 1987, MPC issued a similar note, which circled through
the partners, the partnership, and Qulart, and back to MPC. MIT
85 reported partnership taxable income of $1,865,187 on its
partnership return for 1987. This amount consisted of $1,571,520
(one-half of the $3,143,039 deferred income that it was
allocating over 2 years due to the change in accounting method),
plus $293,667, which it called fee income, and which represented
the accrual of interest payable from MPC, and no expenses.
On January 1, 1988, Fred prepared a Termination Agreement to
end the obligations of MIT 85 and MPC under the employee leasing
agreement. Under the terms of the employee leasing agreement,
MPC owed $3,023,984 to MIT 85. MPC offered to pay $2,116,938 by
transferring to MIT 85 the $2,160,000 note made by Qulart to
Machise, now held by MPC, with a balance, including accrued
interest, of $2,116,938.
The Termination Agreement recited that, after assignment of
the note, the balance due to MIT 85 was $907,045.98, but that MIT
85 had agreed to reduce that amount by $151,531.98 and to cancel
the 10-percent annual late charge. Fred calculated the net
amount due to MIT 85, some $755,514, so that it would equal the
amount that he had projected as the aggregate income to the MIT
85 investors.
Additionally, under the Termination Agreement, MIT 85 was
required to distribute the note to its partners who were to
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