Investment Engineers, LTD., Robert S. McGlamery, A Partner Other than the Tax Matters Partner - Page 16

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            Neither Knox nor anyone else provided any specific explanation,                               
            examples, or research product that showed how the product would                               
            or could work, or how the research would lead to an actual                                    
            business activity.  Petitioner and Knox merely offered hearsay                                
            materials that allegedly corroborated their view of the problems                              
            in the national economy.                                                                      
                  Petitioner introduced expert testimony and a report that                                
            analyzed the diskettes created in 1995.  The expert report                                    
            specifically stated, however, that the expert was not an                                      
            economist and did not “fully understand the economic projections                              
            and usefulness of the goals of this software and furthermore                                  
            cannot comment on the algorithms used in the software.”                                       
                  The record is devoid of any plan for production of the                                  
            software for sale to the public, and petitioner stipulated to the                             
            absence of arrangements for marketing any product.  Knox and                                  
            Montelius made a few self-serving reports to investors, some of                               
            which were prepared after audit of the partnership’s returns                                  
            commenced, but the reports are not corroborated by any nonhearsay                             
            evidence, and they lack credibility.                                                          
                  The record supports various inferences about the                                        
            tax-avoidance purpose of the partnership and the motivation of                                
            Knox and the other partners; it negates economic substance or                                 
            profit objective.  The evidence does not support a finding that                               
            the partnership had either the objective intent or the capability                             
            of entering into any business.  Petitioner has failed to satisfy                              

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