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small partnership, as defined under section 6231(a)(1)(B),
and is exempt from the partnership audit and litigation
procedures.
FINDINGS OF FACT
In 1987, petitioners and another individual who is
now deceased, Mr. Harry Lee Roberts, formed Beaufort Leaf,
a North Carolina general partnership, to engage in the
purchase and sale of tobacco. The three partners agreed
that petitioners would finance the partnership's operations
and, for that purpose, that petitioners would cosign a note
in the principal amount of $300,000. The partners also
agreed that Mr. Roberts would be responsible for the day-
to-day management and operation of the partnership and
would be paid approximately $20,000 per year in addition to
his share of any partnership income. There was no written
partnership agreement, but the partners orally agreed that
each partner would have a one-third distributive share of
all partnership income, gain, loss, deduction, or credit.
Petitioners initially intended that Beaufort Leaf would be
in business for only 1 year, but it continued to conduct
business until 1992.
During the time Beaufort Leaf was in business,
Mr. William H. Dawson, Jr., a licensed accountant,
maintained its books and prepared its Federal income tax
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