- 5 -
to petitioner that the investment involved "the only machine in
the world that could recycle styrofoam". Russell also explained
that there were tax benefits to be derived from the investment.
Petitioner decided to invest in Republic, and on December 8,
1982, she drew a check payable to Republic in the amount of
$7,500 on a checking account in the name of Deborah Kent's, Inc.4
As a result of the $7,500 investment in Republic, petitioner
on her 1982 Federal income tax return deducted a partnership loss
of $5,839 and claimed an investment tax credit of $5,773 that was
limited to her 1982 income tax liability (as reduced by the
partnership loss) of $2,472. The $3,301 balance of the
investment credit along with a business energy credit in the
amount of $5,7735 was carried back to tax years 1979, 1980, and
1981 to generate tax refund claims in the amounts of $4,848,
$3,789, and $437.
4Petitioner reported on her Federal income tax return
dividend income of only $290 for the year 1982. We therefore
assume that the check drawn to Republic on the corporate checking
account represents either a loan to petitioner or part of the
wages that petitioner reported on the 1982 tax return. The
record reveals no connection between the corporate check and
petitioner's money market fund.
5Petitioner claimed as her portion of the basis in the
recycling deal $57,727, the claimed investment credit and energy
credit each representing 10 percent of her claimed basis. The
parties have now stipulated that the recycling machine that
generated the partnership deductions and credits in this case was
worth no more than $50,000. The record does not reveal what
percentage petitioner's indirect ownership was in Davenport, the
entity that apparently owned or leased the machine.
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