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creation, purpose, or payment on the notes receivable principal
balance from 1976 through 1985.
We also find petitioner’s reliance on the audit reports of
Touche Ross & Co. and Yeo and Yeo misplaced. These reports cover
a span of over a decade and clearly state that the auditors
relied on information provided by, and exclusively in the control
of the owners. There is no information in the auditing firm’s
reports that they made an independent verification of the notes
receivable account.
Likewise, FmHA’s recognition of the notes receivable debt is
inapposite to the primary issue of substantiation. The FmHA loan
is not the subject of the bad debt for which petitioner is
claiming a partnership loss deduction in this case. Pursuant to
the loan agreement, the borrower must maintain certain reserve
accounts while the loan obligation remained outstanding.
According to FmHA, petitioner and the other borrowers failed to
maintain these accounts. Although FmHA began foreclosure
proceedings for the failure to maintain adequate reserve
accounts, FmHA did not attempt collection on the notes
receivable. FmHA was not a party to any of the transactions that
gave rise to the underlying debt in issue. FmHA’s interest
focused on the funding of the reserve accounts, from whatever
source.
Based upon the above, we find that the balance in the notes
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