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ment.
Neither Mr. Stone nor Ms. Stone intended to, or did, live at
the Cherrydale residence after Mr. Stone and the children trans-
ferred their respective interests in that residence to ES3LP. If
Mr. Stone or Ms. Stone had desired to live at the Cherrydale
residence after Mr. Stone and the children transferred their
respective interests in the Cherrydale residence to ES3LP, the
children, as the other partners of ES3LP, would not have ob-
jected, provided that Mr. Stone or Ms. Stone, as the case may be,
used personal funds to pay rent to ES3LP.
After the partners of ES3LP transferred the respective
assets that they owned to ES3LP in exchange for certain partner-
ship interests, the children actively managed the assets of
ES3LP, as Mr. and Ms. Stone intended. In this connection, during
1998, after renovation of the Cherrydale residence was completed
in the fall of 1997, ES3LP rented it to, and received rental
income from, Stone Manufacturing, which used that residence to
house a management team that it decided to retain in order to
assist the Company in addressing certain economic difficulties
that it was having.28 In addition, the respective partnership
28In Form 1065, U.S. Partnership Return of Income (partner-
ship return), that ES3LP filed for 1998, ES3LP reported gross
rents of $34,650 from Stone Manufacturing for the rental of the
Cherrydale residence. Neither before nor after Mr. Stone and the
children transferred their respective interests in the Cherrydale
residence to ES3LP did Mr. Stone or Ms. Stone report any rental
(continued...)
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