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The activities and transactions of the limited partnerships
involved herein, Garfield Oil and Gas Associates, a Utah limited
partnership, and Cardinal Oil Technology Partners, a Pennsylvania
limited partnership (hereinafter referred to as the Garfield and
Cardinal limited partnerships or as the partnerships), are
substantially identical to those of the limited partnerships
involved in our test case opinion in Krause v. Commissioner, 99
T.C. 132, 133-167 (1992), affd. sub nom. Hildebrand v.
Commissioner, 28 F.3d 1024 (10th Cir. 1994).
On their respective Federal income tax returns for the years
in issue, petitioners claimed large losses and interest
deductions relating to their investments as limited partners in
the Garfield and Cardinal limited partnerships. Respondent
disallowed these claimed losses and interest deductions, and
petitioners filed the instant petitions contesting respondent's
adjustments. Petitioners now concede all of the originally
claimed tax benefits relating to their investments in the
partnerships, and petitioners seek a loss deduction only for the
amount of cash they invested in the partnerships.
After a lengthy trial in the Krause test cases, we analyzed
the objectives and activities of the particular partnerships
involved in Krause. We concluded that the partnerships’
activities were not conducted at arm’s length, that they were not
legitimate transactions with economic substance, and that they
lacked a profit objective. We concluded that the licenses and
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