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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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