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and provided it to his tax return preparer, who did not question
the Schedule K-1 or the Madison investment when preparing
petitioner’s return. Petitioner reviewed and signed his Form
1040, U.S. Individual Income Tax Return, for 1982, which was
filed with respondent on May 6, 1983.
On his 1982 return, petitioner reported gross income of
$317,784, which was derived from $567,723 of wages, dividends,
interest, and other income, a $24,961 loss from the bus rental
activity, a $30,010 loss from his Hilton Head rental activity,
$131,876 of losses from his oil and gas partnerships, and a
$58,089 loss from Madison. Petitioner also claimed a $116,492
investment credit, which consisted of a $59,835 regular
investment credit and a $56,657 business energy investment
credit, and he reported a $577,500 basis in the recyclers as
qualified investment property. Due to his losses and credits,
petitioner’s tax was reduced to $3,198, and he reported an
overpayment of $92,970. Petitioner received a corresponding
refund.
Respondent’s Examination of Madison
On or about February 19, 1985, respondent issued to Mr.
Roberts, as Madison’s tax matters partner, a Notice of the
Beginning of an Administrative Proceeding at the Partnership
Level With Respect to Partnership Items (NBAP), which stated that
the IRS was commencing an examination of partnership items
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