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development transaction with Inkax. Although no single fact is
determinative of this conclusion, numerous factors taken
collectively, as discussed herein, demonstrate that such
transaction was a sham.
The agreement between 3-Koam and Inkax consists of a vague,
one-page letter, which lacks any discussion of the respective
rights of the parties, a detailed description of the product
configuration, performance criteria by which to measure the
product's suitability for its intended use, or the price to be
charged for its development. As such, we find the purported
research and development contract to be a letter between related
partnerships, intended merely to lend credence to Inkax's
existence, as a shell partnership created by 3-Koam solely for
tax avoidance purposes. See Frank Lyon Co. v. United States,
supra at 581.
3-Koam was haphazard in its efforts to enter into the video
game distribution market. 3-Koam had no prior experience in
developing and marketing video games. Its knowledge of the video
game business was limited to testing existing products and
assembling video game cabinets for its customers. No market
projection or appraisal was performed to determine whether the
video games had any potential of producing a profit, or had an
economic value approximating the $90,000 that 3-Koam ostensibly
paid for them. The extent of 3-Koam's marketing efforts was to
place one video game in an arcade in Santa Clara and another in
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