Smith v. Commissioner
United States Tax Court
Ps invested in certain limited partnerships and assumed liability for the principal portion of long-term notes given by the partnerships. The partnerships reported the amounts of the notes as license fees and research and development fees and claimed current deductions under sec. 174, I.R.C. 1954, as amended, for accrued liability under the notes. Held: The partnerships were not, in substance, engaged in a trade or business, and the claimed deductions are not allowable.
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Ps invested in certain limited partnerships and assumed liability for the principal portion of long-term notes given by the partnerships. The partnerships reported the amounts of the notes as license fees and research and development fees and claimed current deductions under sec. 174, I.R.C. 1954, as amended, for accrued liability under the notes. Held: The partnerships were not, in substance, engaged in a trade or business, and the claimed deductions are not allowable. Ps are liable for additions to tax under sec. 6661 and additional interest under sec. 6621(c).
1Opinion of the Court
COHEN, Judge:
Respondent determined deficiencies in and additions to petitioners’ income tax as follows:
Docket No. Petitioner Year Deficiency Addition to tax sec. 66611
48306-86 Smith 1981 $19,505.00 ---
1982 13,059.64 $1,303.00
309-87 Karr 1981 8,907.77 ---
1982 7,972.84 797.28
After concessions, the issues for decision are as follows:(1) Whether petitioners are entitled to deduct their pro rata share of the losses of certain limited partnerships on their 1981 and 1982 income tax returns;(2) Whether petitioners are liable for additions to tax under section 6659;(3) Whether petitioners are liable…
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