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The issue for decision is whether petitioner is entitled to
an ordinary loss as a result of his investment in Geotech.
Petitioner presents three arguments in support of his claim
that he is entitled to an $18,750 loss resulting from his
purchase of a 1/4 percent overriding royalty interest in any oil
or gas produced on the Rio Blanco lease.
(1) Section 1244 stock
Petitioner alleges that, after Geotech decided not to drill
on the Rio Blanco lease, he asked Geotech for a transfer of his
interest to another lease, or his money back. He testified that
Geotech then made him a general partner in Royalty Partners. He
further alleges that Royalty Partners successfully drilled a
well, and that he received three "dividend" checks from Royalty
Partners but that a problem developed with the wells and he
received no more money from the operation.
Petitioner next informs us that he asked Geotech to issue to
him founder's stock in Geotech but that he never received any
shares in Geotech. In his Trial Memorandum, petitioner states:
When I asked for stock in the corporation I asked for
founder's (1244) stock. I do not have the stock, but
it was promised to me by oral agreement. * * *
Geotech met all of the qualifications of a small
business corporation. I believe that the substance, if
not the form of this agreement justifies my deduction
as a 1244 stock loss.
(2) Passive activity loss under section 469-1T, Income Tax
Regs., 53 Fed. Reg. 5700 (Feb. 25, 1988)
Again, in his Trial Memorandum, petitioner states:
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