Ernest I. Korchak - Page 20

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          reported on Madison’s 1982 return.  Shortly thereafter,                     
          petitioner received a copy of the NBAP from Mr. Roberts.                    
          Petitioner also received a letter from Mr. Roberts informing him            
          that Madison would keep him advised of all pertinent developments           
          regarding the audit and related matters.  Petitioner showed the             
          letter to his tax return preparer.                                          
               On December 24, 1987, respondent issued to Madison a Notice            
          of Final Partnership Administrative Adjustment (FPAA) for 1982              
          and 1983.  Petitioner received a copy of the FPAA.                          
               In the FPAA, respondent adjusted both the investment tax               
          credit and business energy investment credit property basis from            
          the $7 million Madison had reported to zero and explained that              
          “The investment tax credit and the business energy investment               
          credit in the amount of $7,000,000.00 for the year 1982 is                  
          disallowed because you have not established the amount, if any,             
          of qualified investment and the extent, if any, of entitlement to           
          the credit.”  In the Explanation of Partnership Adjustments                 
          accompanying the FPAA, respondent further explained:                        
                    All items of income, loss deductions and credits                  
               reported with respect to your equipment leasing                        
               activities for the years 1982 and 1983 are disallowed.                 
               For purposes of federal income taxation you cannot be                  
               considered the owner or lessee of the equipment with                   
               respect to which said items of income, loss, deductions                
               and credits are reported because, after examination of                 
               all of the facts and circumstances, you are found not                  
               to have incurred the benefits and burdens of ownership                 
               or lease of the equipment or to have made, in                          
               substance, a true economic investment in the equipment.                
               The transactions entered into with respect to you [sic]                





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