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WHEREAS, the Taxpayers were investors in Far
West Drilling Associates (the “Partnership”),
beginning with the taxable year 1981.
WHEREAS, the Taxpayers have made cash
contributions to the Partnership in the total
amount of $67,500.00[.]
WHEREAS, the Taxpayers have claimed losses
with respect to their interest in the Partnership
on their Federal income tax return beginning in
the year 1981, the allowance of which are
contested by the Commissioner of Internal Revenue.
WHEREAS, the parties wish to resolve with
finality the Federal income tax consequences of
their investment in the Partnership.
NOW THEREFORE, it is hereby determined and
agreed for Federal income tax purposes that:
1. The Taxpayers are entitled to an ordinary
deduction in the amount of $50,625.00 for the
taxable year ending December 31, 1981, with
respect to their investment in the Partnership.
Said amount represents 75% of their cash
investment in the Partnership.
2. The Taxpayers shall be entitled to an
ordinary deduction in any taxable year ending
subsequent to 1981 equal to the amount of cash
payments made by them during such taxable year,
against their assumed portion of the Partnership
debt to Mitchell Petroleum Technology Corporation,
upon substantiation of such cash payments.
3. The Taxpayers’ basis in the Partnership
shall be $0 as of December 31, 1981. The
Taxpayers will, however, be allowed an increase in
their basis in the Partnership, equal in amount to
any subsequent cash payment by Taxpayers made
pursuant to their assumption of a portion of any
debt of the Partnership to Mitchell Petroleum
Technology Corporation.
4. The Taxpayers are not entitled to the
investment tax credit with respect to their
interest in the Partnership for any taxable year.
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Last modified: May 25, 2011