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depreciation deductions are based entirely on the portion
of the subject promissory notes that each partnership
claims as a basis in the residential properties purchased
with the notes.
If none of the promissory notes constitutes a bona
fide debt, as determined by the notices of FPAA, it
follows, as discussed below, that no amount paid or accrued
with respect to any of the notes is deductible as interest
under section 163(a). Furthermore, if none of the
promissory notes constitutes a bona fide debt, it also
follows that neither partnership incurred a cost in issuing
the notes and neither partnership obtained a basis in any
of the properties for depreciation purposes. Thus, the
first issue for decision in these cases is whether any
of the nonrecourse promissory notes issued by either
partnership constitutes a bona fide debt.
A portion of the interest deducted by both partner-
ships was for "points amortization". These deductions
are based upon the loan origination fees paid by both
partnerships to EMI. The partnerships treated these fees
as additional interest on the first mortgage notes and
amortized them over the life of the loans. The second
issue for decision in these cases is whether the
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