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My Hat, the tax matters partner for 3-Koam, is a California
corporation with its principal place of business in Cupertino,
California.
From the time of its inception in 1987 through the year in
issue, the partners of 3-Koam, and their respective interests in
partnership capital, profits, and losses were as follows: My
Hat, of which Edward Houston (Houston) is the sole shareholder
(25 percent), Unpo Paik (Paik) (25 percent), and Nae Yeal Lee
(Lee) (50 percent). The initial capital of the partnership was a
$50,000 line of credit extended by Lee; Paik and Houston
contributed a new product and technical know-how. Houston is a
metallurgical and component engineer and Paik has a college
degree in computer science.
Research and Development Deduction
3-Koam is primarily engaged in the business of sub-
contracting, packaging, and assembling electronics products,
including video games. When customers would return defective
game cartridges, such as Nintendo type games to a retailer, the
retailer would send the cartridges to the manufacturer, who, in
turn, would ship them to 3-Koam for testing. If possible, 3-Koam
would repair the product, repackage it, and send it back to the
manufacturer for resale. If 3-Koam could not repair a product it
would return it to the manufacturer. A substantial part of 3-
Koam's business also included assembling arcade game cabinets for
its customers who manufactured video game boards.
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Last modified: May 25, 2011