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abandonment loss under section 165(a) and (2) whether FRGC is
entitled to deduct $189,447 in other expenses for 1998.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
FRGC is an Arizona limited liability company whose principal
place of business was Flagstaff, Arizona. In May 1997, FRGC was
formed to engage in predevelopment activities to acquire
undeveloped real estate. The private placement memorandum
materials for FRGC provided that any property or work product
acquired would be contributed to a subsequently established
entity, Flagstaff Ranch Golf Club, LLC (Flagstaff Ranch), for
which FRGC’s investors would receive membership interests in
Flagstaff Ranch in an amount equal to those interests held in
FRGC. Flagstaff Ranch was organized for the purpose of
developing the property to include a golf course, community
center, clubhouse, and residential lots for custom homes.
FRGC’s managing partner was FR Management, LLC (FR
Management), which was wholly owned by petitioner and his wife,
Susie Mehen. FRGC’s operating agreement provided that FRGC would
pay FR Management $10,000 per month for management fees and
$13,000 per month for overhead expenses. FRGC also paid Susie
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