Donald L. Walford - Page 19

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          is not entitled to the claimed deductions, we explain why                   
          applying an economic analysis based on the projected future                 
          cashflows of the partnership further supports our finding.  We              
          have previously used a present value analysis in similar                    
          situations to determine whether an activity was engaged in for              
          profit within the meaning of section 183.  See Soriano v.                   
          Commissioner, 90 T.C. at 54-57; Gianaris v. Commissioner, supra;            
          Keenan v. Commissioner, T.C. Memo. 1989-300.                                
               For example, in Gianaris, we examined the economic                     
          projections and income assumptions of a partnership engaged in a            
          similar EMS-related activity and found that there was no                    
          reasonable possibility of a profit independent of tax                       
          considerations because the discounted cashflows (disregarding tax           
          considerations) would have been negative.  We explained the use             
          of a present value analysis to determine profit objective as                
          follows:                                                                    
                    Generally, a financial investment will require one                
               or more cash payments and will produce one or more cash                
               returns.  Net present value (net cash-flow) is the sum                 
               of the initial investment (a negative cash-flow) plus                  
               the present values of future cash-flows (which may be                  
               either negative or positive).  If net present value is                 
               positive, the investment is profitable, and a profit-                  
               seeking investor would pursue it.  If net present value                
               is zero, the investment is neither profitable nor                      
               unprofitable, and a profit-seeking investor would be                   
               indifferent to it.  If net present value is negative,                  
               the investment is unprofitable, and a profit-seeking                   
               investor would avoid it. [Id.; fn. refs. omitted.]                     







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