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Russell each were general partners in BBP and that they each held
a 50-percent interest in the profit sharing, loss sharing, and
ownership of capital of the partnership. Additionally, Melvin
and Russell each reported 50-percent of BBP’s income, gain, loss,
deduction, and credit on their individual Federal income tax
returns.
For the taxable year 1994, BBP’s gross income from the
farming activity totaled $1,503,976.58. This amount was
attributable to grain sales by BBP to Bottineau Farmers Elevator
(Bottineau). The grain sold in 1994 was grown in prior years and
was an asset of BBP. The following schedule lists the payments
made by Bottineau in 1994 for the grain:
Date Payee Amount
1/03/94 Ballantyne Bros. $821,565.32
1/17/94 Ballantyne Bros. 250,000.00
2/28/94 Russell Ballantyne 104,181.18
3/04/94 Russell Ballantyne 59,238.79
3/18/94 Ballantyne Bros. 121,816.80
10/18/94 Ballantyne Bros. 73,993.25
10/18/94 Jean Ballantyne 73,181.24
Total 1,503,976.58
On the Schedule F, Profit or Loss from Farming, attached to its
1994 Form 1065, BBP reported depreciation and other farm expenses
of $371,294, resulting in a net farm profit of $1,132,681. On
its Form 1065, BBP reported additional income of $144,046 from
oil revenues, resulting in total income of $1,276,727. After
accounting for miscellaneous deductions, BBP reported ordinary
income of $1,242,710 from trade or business activities. BBP also
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