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The agreement was intended to constitute a preliminary
understanding of the parties. To summarize, it stated that
(1) in Phase II the parties would draft a final and binding
settlement agreement and (2) the investors would then be entitled
to deduct, in the first year of the partnerships' operation, 70
percent of the expenses generated by the partnerships'
transactions. The remaining 30 percent would be disallowed in
the first year, but investors would be entitled to deduct this
amount ratably in subsequent years. Mr. Schulman and the IRS,
however, never executed a final and binding settlement agreement.
On October 12, 1984, petitioner filed his 1983 Federal
income tax return. The return claimed $162,460 of loss
deductions from Schedule E (Supplemental Income Schedule)
attributable to petitioner's allocable share of income and loss
from investments in Wolverine and Woodchuck.
In Wolverine, Ltd. v. Commissioner, T.C. Memo. 1992-669,
affd. without published opinion 39 F.3d 1190 (9th Cir. 1994), we
disallowed Wolverine and Woodchuck's claims to interest
deductions on their 1983 returns, on the grounds that the
partnerships' transactions were tax motivated and lacked economic
substance. Petitioner litigated that case on behalf of the
partnerships as a partner other than the tax matters partner.
On September 23, 1993, respondent issued a notice of
deficiency to petitioner. In the notice, respondent determined
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