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C. Petitioner’s Investment in San Nicholas Research, Ltd.
In late 1983, petitioner signed a subscription agreement and
purchased 15 limited partnership units (an 11.719-percentage
interest) in San Nicholas Research, Ltd. (San Nicholas or the
partnership).6 Petitioner purchased the partnership units
pursuant to a private placement memorandum dated October 10,
1983. See infra pp. 6-8, 8-11.
Petitioner paid $2,790 per limited partnership unit, or a
total of $41,850, for his 15 units in San Nicholas. Of this
amount, $1,140 per unit, or $17,100 for 15 units, was paid in
cash. The balance, $1,650 per unit or $24,750 for 15 units, was
payable pursuant to a 10-year promissory note.7
At the time that he signed the subscription agreement,
petitioner believed that his investment in San Nicholas offered
tax benefits, and his decision to invest was influenced by that
belief.
D. Putative Nature of San Nicholas’ Business
According to the private placement memorandum dated October
10, 1983 (the offering memorandum), San Nicholas was formed in
6 The general partner and tax matters partner of San
Nicholas was Alfred M. Clancy, an individual whom petitioner did
not know at the time that he invested in San Nicholas.
7 The note, which was recourse in form, contemplated
payments of interest only for the first 5 years. As matters
actually transpired, in the late 1980s, the limited partners were
given the option of paying a discounted percentage of the
principal in cash. Petitioner elected this option.
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