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concessions, we must decide whether the Partnership had debt that
allowed its partners to increase their bases in the Partnership
under section 752(a). We hold it did not. Unless otherwise
indicated, section references are to the Internal Revenue Code in
effect for the relevant years. Rule references are to the Tax
Court Rules of Practice and Procedure.
Background
The parties have filed with the Court a stipulation of facts
and related exhibits. We find the stipulated facts accordingly
and set forth the relevant facts in this background section. The
Partnership’s principal place of business was in Saratoga,
California, at all relevant times.
In late 1990, Matthew Schadeck (Mr. Schadeck), three of his
colleagues1 (Mr. Schadeck and his three colleagues are
collectively referred to as the individuals), and Dynadeck Rotary
Systems Incorporated (Corporation), a California S corporation,
formed the Partnership to develop an idea that Mr. Schadeck had
for a new rotary engine. The individuals had incorporated the
Corporation on December 18, 1990, and they were its only
shareholders. The individuals intended that the Corporation
would secure funding for the rotary engine’s development, and
1 The colleagues’ names are Garon Handley, Fred Schadeck,
and an attorney named Martin Lettunich (Mr. Lettunich).
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Last modified: May 25, 2011