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passthrough from Northeast, on their 1981 Federal income tax
return the Stones deducted an operating loss in the amount of
$20,340 and claimed investment tax and business energy credits
totaling $42,406. The underlying deficiency in the Stone case
results from respondent's disallowance of the Stones' claimed
operating losses and credits related to Northeast.
Also during 1981, Cote acquired a 6.187-percent interest in
Hyannis for his investment of $50,000.5 As a result of the
passthrough from Hyannis, on their 1981 Federal income tax return
the Cotes deducted an operating loss in the amount of $40,646 and
claimed investment tax and business energy credits totaling
$74,611. An additional $4,583 of the 1981 business energy credit
was carried back to 1980. The Cotes' underlying deficiencies for
taxable years 1980 and 1981 result from respondent's disallowance
of their claimed operating losses and credits related to Hyannis.
Cote and Stone are both well educated and very successful
and sophisticated businessmen. Stone holds a B.S. in electrical
engineering from Northeastern University and an M.B.A. from
Babson College. After college he worked for the Raytheon and
Hewlett-Packard companies, and in 1975 he started his own
electronic components company, Stone Component Sales Corp. Cote
5 The parties stipulated that Cote owned a 3.094-percent
interest in Hyannis. However, Cote's 1981 Form K-1, Partner's
Share of Income, Credits, Deductions, etc., attached to the
Hyannis partnership return, indicates that he acquired a 6.187-
percent interest in Hyannis. The reason for this discrepancy is
not explained in the record.
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