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holding that the investors intended to create an entity other
than a partnership.
For example, our focus in Krause was not on whether the
parties intended to form partnerships. Our focus was on the
underlying activity and transactions entered into by the
partnerships after the investors entered into and invested in the
partnerships.
As previously noted, finding that the underlying
transactions entered into by the partnerships did not constitute
arm’s-length transactions, that the license fees agreed to were
not negotiated at arm's length and were excessive, and that the
assets acquired were overvalued, we held that the transactions
entered into by the partnerships, upon which the losses in
dispute were based, were not entered into with a profit
objective, that the underlying transactions did not constitute
legitimate for-profit business transactions, and that purported
debt obligations associated therewith did not constitute genuine
debt obligations and were to be disregarded.2 Krause v.
Commissioner, 99 T.C. at 140-141, 145, 171, 175-176.
The essence and focus of the inquiry as to whether an
arrangement constitutes a partnership is whether the parties
thereto intended to create a partnership. See, e.g.,
2 It is noted that the Court made these findings in Krause v.
Commissioner, 99 T.C. 132 (1992), affd. sub nom. Hildebrand v.
Commissioner, 28 F.3d 1024 (10th Cir. 1994), with respect to a
sister partnership, Technology-1980.
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