- 12 - economic substance, or lacks a profit motive. Douglas v. Commis- sioner, 86 T.C. at 762; Michaels v. Commissioner, T.C. Memo. 1995-294. We may consider the terms of a stipulated settlement in determining whether partnership losses are grossly erroneous. However, we do not draw an inference that the partnership losses are grossly erroneous where the stipulation is silent as to whether the partnership transaction was a sham. Michaels v. Commissioner, supra. Petitioner asserts that Thomas Dillon invested in Supertaps merely to obtain tax losses and not to obtain a positive return on the investment. Therefore, petitioner concludes that the loss deductions from Supertaps do not qualify as deductible expenses under well-settled legal principles, and there is no basis in law for the allowance of the loss deductions. Sham transactions are not given effect for Federal income tax purposes, Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978), and the resulting deductions are phony and without basis in fact or law. In this regard, petitioner has the burden of producing evidence concerning the sham nature of the underlying transaction and the lack of profit motive on the part of the entity and its principals. Here, petitioner must establish that, at the partnership level, Supertaps was a sham transaction with- out a profit motive. Hulter v. Commissioner, 91 T.C. 371, 393Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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