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tax credit from Grade, an income tax liability (exclusive of the
investment tax credit) of $4,646, and an income tax liability
(after applying $4,646 of the investment tax credit to 1981) of
zero. Respondent disallowed the $689 loss and the $4,646
investment tax credit applied to 1981.
Petitioner has a 7-percent limited partnership interest in
the profits and losses of Grade. Grade, in turn, has a 16.6666-
percent limited partnership interest in the profits and losses of
Degree Associates (Degree). Degree is a limited partnership with
1 general partner; namely, Joel Mallin. Degree’s stated purpose
was to lease and exploit energy management systems equipment
which, when installed, would control the use of energy in a
plastics manufacturing plant operated by Milor Corporation. An
investment in Degree carried a very high degree of risk.
Degree’s promoter distributed a private placement
memorandum (PPM) on Degree to potential investors. The PPM
listed cash-flow and economic projections for 1981 to 2011 (PPM
projections) which were predicated upon the assumption that: (1)
The projected level of energy conservation would be achieved, (2)
the cost of energy would increase 18.5 percent per year between
1981 and 2011, and (3) the energy management systems equipment
would remain useful for that 30-year period. The PPM projections
predicted total pretax receipts by Degree of $4,502,490 between
1981 and 2011, the present value of which equals $181,228, when
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Last modified: May 25, 2011