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partnerships are entitled to these deductions for points
amortization.
The notices of FPAA also take the position that the
activity of each partnership for each of the tax years in
issue, 1983, 1984, and 1985, is an "activity not engaged
in for profit" within the meaning of section 183(c). The
notices of FPAA state: "the allowability of interest
expenses incurred is limited to the investment income of
the taxpayer for the taxable year." Thus, according to the
notices of FPAA, if section 183 applies, then the interest
expenses of each partnership must be treated as investment
interest subject to limitation under section 163(d). On
that basis, the adjustments to the subject returns would be
similar in amount to the adjustments determined under the
theory, described above, that neither partnership had
entered into a bona fide indebtedness during any of the
years in issue.
The application of section 183 is not just an
alternative theory. The notice of FPAA issued to
EA 84-III for 1985 relies on section 183 to disallow
net operating expenses of $44,219. This is the amount
by which the deductions claimed by EA 84-III exceed the
partnership's gross income, after the deductions for
interest and depreciation are disallowed under the non-bona
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