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what NITCO should have obtained had it been dealing at arm's
length with the other two partners, BMCT and FiberComm. In
addition, to NITCO's detriment, the partnership agreement greatly
overvalued BMCT’s and FiberComm's capital contributions to the
BMCT limited partnership.
The partnership agreement provided that NITCO would receive
annual guaranteed payments from the limited partnership equal to
10 percent of NITCO's capital contribution. The partnership
agreement also provided that any remaining cash flow and
operating profits would be allocated 99 percent to BMCT and
FiberComm, the general partners, and 1 percent to NITCO, the only
limited partner. In the event that the BMCT limited partnership
was liquidated, the proceeds were to be distributed to the extent
of and in proportion to the positive balances in the partners'
capital accounts.
Prior to the latter part of 1991, Mr. Mussman and NITCO had
not engaged in any discussions with Kyle about the formation of a
cellular telephone partnership between BMCT and NITCO. In April
1991, the IRS issued the respective notices of deficiency to
petitioners that are the subject of the instant cases. As a
result of certain legal advice he and NITCO received from
attorneys with the law firm of McDermott, Will & Emery (MW&E),
Mr. Mussman decided to have NITCO's loans to BMCT converted to a
limited partnership interest in a partnership to be formed among
BMCT, FiberComm, and NITCO. A MW&E attorney previously had
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