Sharon Lee Bartlett, F.K.A. Heitzman - Page 30

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          1993-251, affd. on this issue and revd. in part without published           
          opinion sub nom. Balboa Energy Fund 1981 v. Commissioner, 85 F.3d           
          634 (9th Cir. 1996), which held similarly structured oil and gas            
          partnerships--which used up-front accruals of minimum advance               
          royalties to generate claims for large tax deductions that were             
          never paid for--to be sham transactions.  In Osterhout, we found            
          that “the objective of the * * * [partnerships at issue in that             
          case] was to help investors avoid taxes and to enrich the coffers           
          of the promoters”, including Meserve, a partner in the law firm             
          rendering the tax opinion for Stonehurst.  There are striking               
          parallels between Osterhout and the case at hand.                           
               In Osterhout, as in the case at hand, the promotional                  
          material emphasized the tax benefits available to investors who             
          would benefit regardless of whether oil and gas were actually               
          discovered.  An investor in Stonehurst could seemingly “win” by             
          receiving tax deductions far in excess of the amount paid for the           
          partnership interest even if no oil or gas was produced.  See               
          Ferrell v. Commissioner, 90 T.C. at 1183; Osterhout v.                      
          Commissioner, supra (citing Barnard v. Commissioner, 731 F.2d 230           
          (4th Cir. 1984), affg. Fox v. Commissioner, 80 T.C. 972 (1983)).            
               In cases such as Osterhout, where “the promised tax benefits           
          are suspiciously excessive and the transaction is carried out               
          with complete indifference to profit, it is clear the parties               
          intended to structure the transaction for the tax benefits.”                
          Osterhout v. Commissioner, supra (citing Flowers v. Commissioner,           



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