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Schedule F deductions as follows: (1) The partnership activities
constituted a series of sham transactions lacking economic
substance; (2) the partnership did not actively engage in the
trade or business of farming; and (3) the partnership did not pay
or incur any bona fide trade or business expenses during the
taxable period, or, if the partnership did pay or incur expenses,
the partnership did not establish that these were ordinary and
necessary trade or business expenses currently deductible under
section 162.
In the FPAA, respondent set forth alternative positions
based on his determination that the partners were not entitled to
deduct their proportionate shares of the partnership’s losses
because they were not “at risk”, within the meaning of section
465, or did not have sufficient adjusted basis in their
partnership interests. See sec. 704(d). Respondent also reduced
the partnership’s tax preference items by disallowing qualified
investment expenses of $9,973,739.
In the petition, the petitioning partners assigned error to
all of respondent’s adjustments and, with respect to the
disallowance of the Schedule F deductions, averred the following:
(1) The partnership incurred and paid ordinary and necessary
expenses in the conduct of its trade or business of farming, in
an amount not less than the amount claimed by the partnership,
(2) the partnership engaged in a bona fide farming activity,
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Last modified: May 25, 2011