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income, builder rebates, and general partner advances.
EPIC's management realized that its ability to remain in
business would be hurt if any of its limited partnerships
defaulted on an obligation. EPIC's management recognized
that EPIC had to advance funds to its partnerships. EPIC's
management also recognized that the advances would not
realistically be repaid until and unless the properties
were sold at a profit. An internal memorandum prepared
sometime after September 1983 states as follows:
To the extent anticipated operating deficits are
greater than depreciation (5.3% of purchase
price), one half of this deficit must be funded
by sources other than limited partner contribu-
tions. To the extent we initially over-estimate
partnership income in the offerings, all of the
increased operating deficit will come from the
general partner.
On the basis of the testimony at trial and the above, we
find that EPIC's advances to both partnerships were in the
nature of equity rather than indebtedness. Accordingly,
any "interest" attributable to such advances claimed as a
deduction by either partnership for any of the years in
issue is not allowable under section 163(a).
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