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returns that ES3LP filed for 1998 and 1999 reflected that ES3LP
made investment decisions to sell some of its assets, including
certain stock that it purchased on May 7, 1997, and that it sold
approximately two years later for a substantial gain.29 ES3LP
also hired advisors and accountants who at all times were differ-
ent from those of ES4LP, CRSLP, RSMLP, and MSFLP. At no time did
the partners of ES3LP, including Mr. Stone and Ms. Stone, commin-
gle the assets that ES3LP owned with their respective personal
assets. At all times, ES3LP was respected by the Stone family as
a separate entity.
In April 1997, the partners of ES4LP made bona fide, arm’s-
length transfers to that partnership, as follows. On April 9,
28(...continued)
income from that residence in any Federal income tax return. In
Form 1040, U.S. Individual Income Tax Return (Form 1040), that
Mr. and Ms. Stone filed jointly for their taxable year 1995 (1995
joint return), they reported “Rents received” from “various”
rental properties totaling $92,798. The depreciation schedules
attached to the 1995 joint return identify those “various” rental
properties as properties other than the Cherrydale residence. In
Mr. and Ms. Stone’s joint returns for their taxable years 1996
(1996 joint return) and 1997 (1997 joint return), they reported
“Rents received” from “various” rental properties totaling
$99,435 and $34,440, respectively. The respective depreciation
schedules attached to the 1996 joint return and the 1997 joint
return identify those “various” rental properties as properties
other than the Cherrydale residence and as the same properties
from which Mr. and Ms. Stone reported rents in the 1995 joint
return. In Form 1040 that Ms. Stone filed for the taxable year
1998 (Ms. Stone’s 1998 return), Ms. Stone did not report any
rental income.
29Although not altogether clear from the record, it appears
that ES3LP reinvested the proceeds from the sale of its assets.
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