- 4 -
leases entered into by the partnerships were not supported by
economic substance, did not conform to industry norms, and
precluded any realistic opportunity for profit. See id. at 169,
175. We sustained respondent's disallowance of the claimed
losses and interest deductions relating to the taxpayers’
investments in the partnerships, and we imposed an increased
interest rate under section 6621(c).
Petitioners herein stipulate that the factual findings made
in the Krause test case opinion with regard to the partnerships
involved therein also apply to the activities of the Garfield and
Cardinal limited partnerships. We treat this stipulation as an
admission that the activities of the Garfield and Cardinal
limited partnerships were not conducted at arm’s length, that
they were not legitimate transactions with economic substance,
and that they lacked a profit objective.
Discussion
As we explained in Vanderschraaf v. Commissioner, T.C. Memo.
1997-306, affd. without published opinion 211 F.3d 1276 (9th Cir.
2000), it is well established that the issue under section 183 as
to whether a partnership investment has associated with it
economic substance and a profit objective is determined at the
partnership level. See Pasternak v. Commissioner, 990 F.2d 893,
900 (6th Cir. 1993), affg. Donahue v. Commissioner, T.C. Memo.
1991-181; Simon v. Commissioner, 830 F.2d 499, 507 (3d Cir.
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