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B. and Victoria T. Hornbeak under California law. The main
purpose of the partnership was to acquire real property in
Irvine, California, and to construct and rent a building on the
site. Grant Hornbeak was the managing partner. Petitioners and
the Hornbeaks each owned a 50-percent interest in the partnership
and shared net profits and net losses equally. The agreement
stated:
The Managing Partner shall provide quarterly
financial statements of the partnership’s activities to
each partner. In addition, the Managing Partner shall
furnish each partner with a copy of the income tax
return filed by the partnership * * *.
* * * * * * *
All books, records and accounts of the partnership
shall be open to inspection by all partners * * *.
Petitioner brought an asset base to the partnership so that
the partnership could secure bank loans to construct the
buildings. The bank loans were secured with some of petitioner’s
personal assets. Grant Hornbeak provided services for, and day-
to-day management of, the partnership in return for monetary
compensation.
The only return filed for the partnership (on March 12,
1984) was for the taxable year ending September 30, 1982.
On September 30, 1982, the partners dissolved the
partnership. The partnership was unsuccessful due to
historically high interest rates of approximately 20 percent.
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