- 39 -
be ignored with reasonable safety in undertaking a serious
business transaction”); see also Estate of Clopton v.
Commissioner, 93 T.C. 275, 285-286 (1989); Briggs v.
Commissioner, 72 T.C. 646, 656-657 (1979), affd. without
published opinion 665 F.2d 1051 (9th Cir. 1981).
We find that Stonehurst, like the partnerships at issue in
Osterhout v. Commissioner, T.C. Memo. 1993-251, was a sham
transaction entered into for tax benefits without any objective
possibility of producing an economic profit independent of the
contemplated tax benefits that should not be given effect for
Federal income tax purposes. Frank Lyon Co. v. United States,
435 U.S. at 573; Ferrell v. Commissioner, 90 T.C. at 1199. We
find that the minimum annual royalty and the intangible drilling
costs accrued by Stonehurst in 1979 and claimed by Mr. Heitzman
on the 1979 joint return to be completely without basis in fact
or law, sec. 6013(e)(2)(B), Belk v. Commissioner, 93 T.C. at 442;
Bouskos v. Commissioner, T.C. Memo. 1987-574 citing Douglas v.
Commissioner, 86 T.C. at 762-763, and therefore grossly erroneous
for purposes of section 6013(e)(1)(B).16
16 Because we held in Heitzman v. Commissioner, T.C. Memo.
1987-109, affd. 859 F.2d 783 (9th Cir. 1988), that neither the
minimum annual royalty nor the intangible drilling costs could
have been claimed as deductions in 1979, as a matter of law, we
also find them to be grossly erroneous as being without basis in
law. Reser v. Commissioner, 112 F.3d 1258, 1265 (5th Cir. 1997),
affg. in part and revg. in part T.C. Memo. 1995-572.
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