9
Under the terms of the settlement, Eltech forgave and
canceled payment of the $2,069,656 balance due from Lone Star.
At the time of the settlement, Lone Star's adjusted basis in the
chlor-alkali system was $1,019,104 ($2,621,798 cost basis less
$1,602,694 of depreciation deductions). At the direction of
Eltech, Lone Star, "as beneficial owner", transferred full
ownership of the chlor-alkali system to Electro and agreed to
relieve Electro of all obligations under the Lone Star-Electro
lease. Electro agreed to pay Lone Star some amount, which was
determined by respondent to be $258,986, but Electro never
fulfilled that obligation.
B. Petitioner Sands
Respondent argues that Sands deducted amounts in excess of
her distributive shares of the partnership items. Sands owned a
5-percent, 7-percent, and 7.5-percent partnership interest in
Lone Star during the taxable years 1984, 1985, and 1986,
respectively, and her distributive share of the partnership items
for each taxable year is limited accordingly.
1. Depreciation Deductions
Respondent argues that Sands is not entitled to depreciation
deductions, because the chlor-alkali system was never placed in
service. Electro installed and operated the chlor-alkali system
in 1984, and we find that the system was placed in service at
that time. We recognize that problems plagued the system's
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