- 160 -
upon the perceived success of the limited partnerships that
it syndicated. As a result, EPIC advanced a high
percentage of the lump-sum payments and fees that it
realized from the acquisition of new properties to satisfy
the obligations of older partnerships, and thus to make
sure that none of the partnerships defaulted on its
obligations. In choosing to make those advances and
prevent any default, the management of EPIC continued to
believe that it could carry the properties until interest
rates decreased and the real estate market turned around.
Respondent also ignores the fact that EPIC was entitled to
25 percent of the net profits from the sale of properties,
so-called back-end appreciation. Mr. Clayton McQuistion,
an important member of EPIC's management, referred to this
as "a gigantic profit opportunity".
Based upon the record of these cases, we find that
EPIC, acting as the general partner of both EA 83-XII and
EA 84-III, engaged in the activities of both partnerships
with an actual and honest objective of making a profit.
EPIC's Advances to EA 83-XII and EA 84-III
As mentioned above, respondent determined in the
subject notices of FPAA that the deductions for interest
claimed by each partnership with respect to the unsecured
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