Daniel L. Carroll and Ingrid N. Carroll, Plaintiffs-Appellees-Cross-Appellants v. United States of America, Defendant-Appellant-Cross-Appellee

SACK, Circuit Judge.

This ease arises out of the plaintiff Daniel L. Carroll's investment in a limited partnership — Stevens Recycling Associates (“Stevens” or “Stevens partnership”). On the basis of a $16,667 investment in 1982, Plaintiffs-Appellees Daniel L. and Ingrid N. Carroll (“the Carrolls”) reduced the amount of the income tax liability that they reported for that year by $32,152. After the Tax Court held in a related case in 1992 that transactions of the kind employed by the Stevens partnership were a sham, the tax matters partner of the Stevens partnership entered into a settlement…