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Petitioners, Patrick and Arlene Sheehy, resided in
California when the petition in this case was filed. References
to petitioner in the singular are to petitioner husband.
In 1992, petitioner made $50,000 in capital contributions to
Recyclable Containers Company (RCC).1 His investment resulted in
his ownership of a 1-percent profit-share.
According to an undated private placement memorandum, there
was $400,000 worth of limited partnership interests available in
RCC. The private placement memorandum explains:
Recyclable Containers Company * * * intends to offer
privately to a limited number of sophisticated
investors the opportunity to invest in [RCC], a
California limited partnership organized to further
research and development of the technology involved
relating to the high volume manufacturing of a
fabricated all-plastic, reusable and recyclable
shipping and storage container and pallet * * * which
has various proven produce and industrial applications;
to build the production tooling and equipment to
manufacture and sell the Product; and to license the
technology to manufacture the Product on a world-wide
basis.
For taxable year 1992, petitioners deducted $50,000 as a
"Product Development" expense on a Schedule C, Profit or Loss
From Business, attached to their 1992 Federal income tax return.
On the Schedule C, petitioners listed "Recyclable Container
Company" as the business name, and characterized the business as
1 Petitioners contend that the $50,000 is not a capital
contribution. However, RCC characterized investments as either
"loan" or "capital", and we use the capital contribution
designation for the sake of convenience.
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