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there is an exclusion from passive activity limitations
for oil and gas explorations. If the General Partner,
even though he does not engage in management of the day
to day business of the partnership, assumes the
liabilities of the operation he is entitled to deduct
the intangible drilling costs against ordinary and non-
passive income. I have a copy of the filling (sic)
with the SEC naming me General Partner in Royalty
Partners and other correspondence made from me as
general partner to the limited partners. I also have
check vouchers for the money I received. I received
$45.57 in income from Royalty partners and should be
entitled to deduct $18,704.43 against ordinary income
under this regulation ($18,750 - $45.57).
(3) A loss under section 165-2(c), Income Tax Regs.
Finally, in his Trial Memorandum, petitioner states:
losses of a lessee from abandonment of worthless leases
are deductible. In A. Finston 15 TCM 1048 the
judgement (sic) allowed deduction of worthless royalty
interests in the sense that it was improbable that the
royalty area would ever produce oil and gas in
commercial quantities. I have the document where
Geotech abandoned the lease on the Rio Blanco property.
My loss of $18,750 in this instance should be
deductible against ordinary income under this
regulation.
Respondent contends that petitioner is not entitled to an
$18,750 ordinary loss on small business stock pursuant to section
1244. Respondent did, however, allow petitioner "a short-term
capital loss of $18,750 incurred from a deductible non-business
bad debt for the taxable year 1991."3
We begin by noting that petitioner has the burden of proving
that respondent's determination is in error. Rule 142(a); Welch
v. Helvering, 290 U.S. 111 (1933). We further observe that the
3 We make no comment as to the propriety of allowing the
$18,750 as a nonbusiness bad debt.
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