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which petitioner and WE 7 were the general partners.1 When
formed, petitioner owned an equity interest in Estes Co. of
approximately 23.3 percent.
Also during January 1977, Estes Co. and Severn Corp.
(Severn), a wholly owned subsidiary of Singer Housing, formed
Estes Homes, a partnership which operated as a commercial and
residential real estate developer based in Tucson, Arizona.2 As
consideration for the transaction, petitioner and WE 7 in the
aggregate surrendered $200,000 in Singer Co. stock and assumed an
obligation of approximately $29 million, one-half of which was
owed to Singer Housing and the balance to local commercial banks.
Under the partnership agreement forming Estes Homes, the
partnership agreed to repay Severn's capital account plus an 8-
percent return on that account in semiannual distributions
through February 1987. Severn did not participate in the
management of Estes Homes.
The Management Contract
1 Before Jan. 5, 1981, Guardian Construction Co., a general
partnership of which WE 7 and Guardian Development, Inc., an
Arizona corporation, were the general partners, also became a
partner of Estes Co. Guardian Construction Co. was the managing
partner of Estes Co. sometime after Sept. 20, 1980, but at least
by Jan. 5, 1981.
2 During December 1986, WJL Resources, Inc. (WJL) acquired
Severn's interest in Estes Homes. WJL was an affiliate of WE 7.
At some time, Estes Homes became known as RCP Investments and
Estes Co. became known as GWS. For convenience, hereinafter we
use the names Estes Homes and Estes Co. throughout this opinion
to refer to those entities regardless of the names by which they
were known at the time.
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