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In Osterhout v. Commissioner, supra, we found that the
recourse notes issued by the limited partners to the sublessor of
the land leased to the partnerships in issue were “merely * * * a
facade to support the current deductibility of the amounts
accrued as MAR [minimum annual royalties]”. The recourse notes
given to Craig and R.H. Energy and the assumption agreements
signed by the 35 individuals who bought partnership units in
Stonehurst served exactly the same purpose.
In Osterhout v. Commissioner, supra, the possibility of
payment of the notes was so remote as to be illusory. The
likelihood of payment of the notes to Craig and R.H. Energy was
just as illusory. On December 29, 1986, Wind River sent a letter
to the Stonehurst limited partners inviting them to sign an
agreement that would relieve the principals in Stonehurst of all
liabilities and “reduce” the liabilities of the limited partners
by providing a means to pay them down and by further delaying the
due date of the principal until December 31, 2001. Such an
offer, completely unsupported by reference to any discernible
economic reality, suggests that Craig did not entertain any
realistic possibility of being paid in the absence of actual oil
15(...continued)
grossly erroneous. Like the Martin law firm opinion letter in
Osterhout v. Commissioner, supra, with respect to additions to
tax for negligence and whether it was reasonable in the
circumstances of that case for the taxpayers to rely on it, the
Meserve firm’s opinion letter is germane in this case only as a
factor in determining whether petitioner had reason to know of
the grossly erroneous deductions.
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