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executing in favor of White Rim promissory notes in the total
face amount of $385,000. Petitioners made no payments on the
promissory notes.
On their Federal income tax returns for 1980, 1981, and
1982, petitioners claimed large losses, interest expense
deductions, and an investment credit relating to their investment
as limited partners in White Rim. On audit, respondent
disallowed these claimed losses, interest expense deductions, and
investment credit.
In the Krause v. Commissioner, supra, test cases, we
analyzed, primarily at the partnership level, the objective of
the particular partnership activities and transactions involved
in Krause. We concluded that the partnership activities and
transactions were tax-motivated and did not have the requisite
profit objective to support the losses claimed, and we sustained
respondent's disallowance of the claimed losses relating to the
taxpayers’ investments in the partnerships. We found that the
transactions did not constitute legitimate for-profit business
transactions. Also, on the ground that the underlying debt
obligations did not constitute genuine debt, we sustained
respondent's disallowance of the claimed interest deductions
relating thereto, and we imposed an increased interest rate under
section 6621(c). We did not sustain respondent's determinations
under sections 6653(a)(1) and (2), 6659, and 6661 of additions to
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