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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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