Volume 91 — Tax Court Reports

P attempted to file a petition, but did not submit a filing fee. Held: P was provided an adequate alternative to proceed in forma pauperis and his exercise of constitutional rights and privileges were not unreasonably impeded by the requirement of a filing fee. Held, further, evidence illegally seized by State or local authorities may be used by the Federal Government in a civil case.

In Calcutt v. Commissioner, 84 T.C. 716 (1985) (Calcutt I), petitioners, representing themselves without an attorney, failed to satisfy their burden of proving they were entitled to an increase of… Held: the decision in Calcutt I, holding that corporate debts to third parties guaranteed by a shareholder do not lead to an increase in the shareholder's basis in his subchapter S corporation stock, constitutes a judgment on the merits.

Petitioner was engaged in the business of sale and service of photocopying equipment. On its tax returns, petitioner deducted sales exposure expense relating to warranty obligations to its customers. Held: discontinuance of petitioner's practice constituted a change in method of accounting within the meaning of sec. 481, I.R.C. 1954, as amended, and the remaining balance in petitioner's reserve account was income to petitioner during the year of the change.

Petitioner operated rail-test cars to detect defective track which was then replaced. Held, petitioner is not entitled to an investment tax credit in respect of the operating costs of such cars. Held: petitioner is not entitled to an investment tax credit in respect of the operating costs of such cars. Petitioner made mobile homes available rent-free to certain of its employees responsible for sections of track in remote areas.

P and T, husband and wife, filed joint returns for the years at issue. R issued to T a notice of deficiency covering items 1, 2, 3, 4, and 5. T paid the deficiencies. Held: the Court is not deprived of jurisdiction by the payments by T, nor by the parties' resolution of some of the items. Item 1 involved charitable contribution deductions P claimed with respect to funds P transferred to CWP, an organization P founded and controlled.

P, controlling shareholder of L, donated sec. 306 stock of L to two educational institutions. Held: P did not establish that the donations were not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax, under sec. 306(b)(4), I.R.C. 1954. P's contributions deductions are limited to his cost basis of the stock under sec. 170(e)(1)(A).

Decedent's will left a life interest in the residue of his estate to his surviving spouse and the remainder interest therein (subject to the payment of taxes, administration expenses, and certain… Held: the personal representative of the estate did not make an election to have the interest treated as qualified terminable interest property (QTIP) under sec. 2056(b)(7), I.R.C. 1954.

P seeks certification of an interlocutory order pursuant to sec. 7482(a)(2), I.R.C. 1986, for purposes of appealing the decision set forth in Kovens v. Commissioner, 90 T.C. 452 (1988). Held: P, under the facts of this case, does not meet the requirements of sec. 7482(a)(2), I.R.C. 1986.

Under the facts of the instant case, Held, that P's counsel is likely to be a necessary witness at trial of this case, and P's present counsel is therefore… Held: that P's counsel is likely to be a necessary witness at trial of this case, and P's present counsel is therefore barred from serving as P's counsel at the trial herein. Rule 201(a), Tax Court Rules of Practice and Procedure; rule 3.7(a), American Bar Association Model Rules of Professional Conduct, construed.

Held, respondent's intercept of petitioner's claim for refund of tax overpayment pursuant to the tax-intercept provisions of sec. 6402(c), I.R.C. 1954, does not foreclose a subsequent determination… Held: respondent's intercept of petitioner's claim for refund of tax overpayment pursuant to the tax-intercept provisions of sec. 6402(c), I.R.C. 1954, does not foreclose a subsequent determination of a deficiency in petitioner's tax for the same taxable year.

Held, various tax protester arguments rejected. Held, further, additions to tax under secs. 6651 and 6653 upheld. Held: various tax protester arguments rejected. Held, further, additions to tax under secs. 6651 and 6653 upheld. Held, further, withholding credits must be subtracted from the understatement to arrive at the amount of any underpayment in computing the addition to tax under sec. 6661(a).

Decedent's will is governed by South Carolina law. In her will, decedent bequeathed the residue of her estate to a qualified charitable foundation. Held: under South Carolina Code Ann. sec. 21-35-190, in the absence of a provision in the will to the contrary, the administration expenses of an estate are charged to and reduce the amount of the estate's residue.

T, an employee of IBM in Endicott, New York, accepted an assignment from IBM to work abroad for an IBM subsidiary in West Germany. Held: The moving expenses are not deductible under sec. 217 of the Code because sec. 911(d)(6), which is concerned with double benefits, explicitly prohibits any deduction to the extent that it is properly allocable to or chargeable against amounts excluded from gross income under [sec. 911(a)].

P is an exporter of veneer, lumber, and veneer-quality logs. It was organized by its parent to be a DISC and made an election to be a DISC. Held: P's harvesting activities were both substantial in nature and generally considered to constitute production of property and, thus, constituted production within the meaning of sec. 1.993-3(c)(2), Income Tax Regs.Held, further, the veneer logs produced by P and the assets used in their production do not qualify as export property…

During 1979 and 1980, taxpayer, an investor as opposed to a dealer, entered into commodity straddle transactions and claimed ordinary loss deductions relating thereto. Held: Under sec. 108(a) of the Tax Reform Act of 1984, Pub. L. 98-369, 98 Stat. 494, 630, as amended by sec. 1808(d) of the Tax Reform Act of 1986, Pub.

Petitioner sued the residuary beneficiary of his father's estate, claiming an unfulfilled promise for a bequest of property. The litigation was settled for a lump-sum payment. Held: The form of the action filed by petitioner was not controlling. (2) The payment was not shown to be exempt under sec. 102(a), I.R.C. 1954, as amended. (3) The amount received is taxable at ordinary rates.

Respondent determined that petitioner received income during 1980 and 1981 from distributing phenyl-2-propanone, a controlled substance, and that petitioner did not report such income. Held: respondent's determinations, as embodied in statutory notices of deficiency, are entitled to presumption of correctness -- information was not disclosed to revenue agent in violation of Fed. R. Crim.

In connection with serving as an underwriter in a stock offering, P received cash and a warrant to purchase stock. P could not transfer or exercise the warrant until at least 13 months after the date of receipt, and there was no active trading of such warrants on any established market. P later sold the warrant to its sole shareholder. Held, sec. 83, I.R.C. 1954, is properly at issue. Held, further, under the provisions of sec. 1.83-7, Income Tax Regs., P must recognize ordinary income from the warrant upon P's sale of the warrant, not upon P's receipt. Held, further, no abuse of discretion for sec. 1.83-7, Income Tax Regs., to be effective retroactively. Held, further, sec. 1.83-7, Income Tax Regs., is a valid regulation.

Petitioner owned 0.422900 of the total working interest in certain real property. Held: petitioner was a member of a partnership, or a joint venture taxable as a partnership, and is liable for self-employment taxes on her distributive share of partnership trade or business income. Sec. 1402(a), I.R.C. 1954.

Petitioner seeks to depose and perpetuate the testimony of a C.P.A. pursuant to Rule 81 in a case which has been pending before this Court since filing of the petition on Apr. 9, 1986. Held: petitioner has not shown that the C.P.A.'s testimony is in danger of being lost at trial because he engages in what petitioner believes to be hazardous sports.

P is a general partner in a limited partnership with 10 or fewer partners. Held: for purposes of determining whether a partnership falls within the small partnership exception to the partnership audit and litigation provisions as provided in sec. 6231(a)(1)(B), the determination of whether each partner's share of each partnership item is the same as his share of every other item is to be made by examining the…

Z-Tron partnership had 10 or fewer partners during the years here involved. Held: in making the determination of whether each partner's share of each partnership item is the same as his share of every other item for purposes of the small partnership exception in sec. 6231(a)(1)(B), I.R.C. 1954, to the partnership audit and litigation provisions, each partner's share of each item is determined by examining the…

S, a consolidated subsidiary of P, was a qualified organization entitled to claim a bad debt reserve addition under the provisions of sec. 593, I.R.C. 1954. Held: the restrictive portion of sec. 1.593-6(a)(3), Income Tax Regs., in controversy is contrary to the statute and invalid.

P and his former employer H were parties to a proceeding for an accounting in the Federal District Court for the District of Utah. Held: P is estopped to deny that he diverted funds for his own use and benefit. Held, further, this Court adopts the more contemporary standard for factual use of collateral estoppel and, to that extent and only to that extent, overrules the standard set forth in Amos v. Commissioner, supra.

R filed a motion for summary judgment herein, and P filed a motion to certify a question of State law to the Supreme Court of Montana. Held, R's motion for summary judgment is denied. Held: R's motion for summary judgment is denied. Held, further, P's motion to certify a question of Montana law to the Supreme Court of Montana, pursuant to rule 44, Montana Rules of Appellate Procedure, is granted.

A surviving spouse received an income interest in a trust. Held: the trust is not a qualified terminable interest property trust. Sec. 2056(b)(7), I.R.C. 1954.

Counsel for Ps (C) executed and filed a petition on behalf of Ps. Attached to the petition was a final notice of intention to levy for Ps' 1978 taxable year. Held: R's motion to dismiss for lack of jurisdiction is granted since no notice of deficiency was issued for the taxable year 1978. Held, further, the petition and other documents executed by C were not well grounded in fact and law and caused unnecessary delay and a needless increase in the cost of litigation.

A timely petition was filed on Nov. 25, 1986. Held: the relevant period for evaluating R's diligence includes only the time after the petition was filed. Vermouth v. Commissioner, 88 T.C. 1488 (1987), followed.

P was a trustee of the Teamsters' pension fund. P received no compensation from his trusteeship. P was also employed with a trucking company as director of labor relations. Held: the amount of the legal fees which the Pension Fund paid on P's behalf are includable in P's gross income. Held, further, P may deduct the legal fees as an ordinary and necessary business expense under sec. 162(a), I.R.C. 1954.

Individual Ps were parties to a case heard by this Court in which the sole issue for consideration was the reasonableness of the compensation which individual P, Gerrit VanderPol, received from… Held: without additional evidence to show that R's position was unreasonable, the fact that the record as a whole ultimately failed to convince this Court to sustain R's position is insufficient to support an award of litigation costs to Ps under sec. 7430, I.R.C. 1954.

A limited partnership purported to invest in real property in North Carolina. Held: 1. Ownership of the real property was not transferred to the partnership. 2. Held: Ownership of the real property was not transferred to the partnership. 2. A purported $ 24.5 million nonrecourse mortgage debt obligation did not represent genuine indebtedness. 3. The real estate investment activities of the partnership were not engaged in for profit.

During 1980 and 1981, petitioners were engaged as investors and not as dealers in straddle transactions in gold futures. Held: For the purpose of determining whether the straddle transactions were entered into for profit within meaning of sec. 108(a) of the Tax Reform Act of 1984, Pub. L. 98-369, as amended by sec. 1808 of the Tax Reform Act of 1986, Pub.

P was the sole shareholder of E, a corporation which elected to be treated as a DISC. Held: E's 1981 and 1982 distributions to P are actual distributions and are taxable to P to the extent they exceed previously taxed income.

Held, amounts transferred by DISC to its parent treated as actual distributions. Held: amounts transferred by DISC to its parent treated as actual distributions.

During 1981 and 1982, petitioner acquired nine banks. Held: Petitioner proved that deposit base had an ascertainable cost basis separate and distinct from the goodwill and going-concern value of the acquired banks, and that it had a limited useful life, the duration of which could be ascertained with reasonable accuracy.

Some of the petitioners entered into four different transactions, all of which were generic tax shelters. Held: The transactions lacked economic substance, and are to be disregarded for Federal income tax purposes. Further, such transactions are tax motivated transactions under sec. 6621(c), I.R.C. 1954.

U, a corporation, was involved in the business of solid waste disposal and operated a landfill on certain leased land. Held: The transfers from U to M and PRC do not give rise to bona fide debts. Thus, U may not take bad debt deductions under sec. 166(a), I.R.C. 1954. 2. K, as the majority shareholder of U, is deemed to have received constructive transfers from U to the extent K was relieved of his potential secondary liability on the guaranteed debts.

P's local charter or chapter of Universal Life Church (ULC No. 21686) engaged in a daisy chain circular flow of moneys within a group of friends and coworkers of a computer company. Held: P did not make any gift or charitable contribution to a qualified entity organized and operated exclusively for an exempt purpose no part of the earnings of which inured to the benefit of private individuals under sec. 170(c), I.R.C. 1954.

Petitioners acquired gilts and calves as rental payments from their closely held farm corporations. Held: petitioners must recognize rental income on their transfers of gilts and calves to their leased breeding herds. Held, further, the amount of rental income recognized is determined in accordance with the lease agreements.

Petitioners acquired substantial incidents of beneficial ownership in gilts they received from their closely held farm corporation when the animals weighed 220 pounds. Held: the acquired gilts represent rental income received in kind. Held, further, petitioners must recognize rental income on their transfer of the gilts to their leased breeding herd.

P, a medical association exempt from income tax under sec. 501(c)(6), I.R.C. 1954, publishes a medical journal as part of its exempt purpose. Held: To compute its unrelated business taxable income, P may offset the income from its endorsement activities with the losses from its advertising activities only if the advertising activity is a trade or business. 2. P's advertising activity is not a trade or business because P lacks a profit objective in conducting such activity.

P, a full-time physician, executed a promissory note in connection with the acquisition of an undeveloped parcel of unincorporated land known as the Mable Property. Held: P purchased and held the Mable Property as an investment; consequently, the interest incurred on the acquisition debt is subject to the sec. 163(d), I.R.C. 1954, limitation.

This case was remanded from the Court of Appeals for the Fifth Circuit to consider whether petitioners are entitled to recover litigation costs based on the administrative position of the Internal… Held: respondent's position was unreasonable in that the adjustment in the notice of deficiency which caused the litigation in this Court was without legal or factual foundation. Held, further, amounts of reasonable litigation costs determined.

Held, petitioners may not raise income averaging under secs. 1301- 1305, I.R.C. 1954, as a new issue in connection with a computation under Rule 155, Tax Court Rules of Practice and Procedure. Held: petitioners may not raise income averaging under secs. 1301- 1305, I.R.C. 1954, as a new issue in connection with a computation under Rule 155, Tax Court Rules of Practice and Procedure.

In 1981, Ps purchased a yacht which they immediately leased back to the seller, to be used for chartering to others. Held: that Ps have failed to establish that their yacht chartering venture was entered into for profit. Held, further, that Ps are not liable for additions to tax for negligence under sec. 6653(a), I.R.C. 1954.

Held, petitioner not entitled to litigation costs because respondent's position is substantially justified. Held: petitioner not entitled to litigation costs because respondent's position is substantially justified. Sher v. Commissioner, 89 T.C. 79 (1987), followed. Held, further, case not appealable to Second Circuit, therefore Weiss v. Commissioner, 850 F.2d 111 (2d Cir. 1988), revg. and remanding 89 T.C. 779 (1987), not followed.

Held, losses on sales of stock options are not subject to disallowance as wash-sales pursuant to sec. 1091, I.R.C. 1954, because options are not stock or securities within the meaning of sec. 1091. Held: losses on sales of stock options are not subject to disallowance as wash-sales pursuant to sec. 1091, I.R.C. 1954, because options are not stock or securities within the meaning of sec. 1091.

Ps invested in certain limited partnerships and assumed liability for the principal portion of long-term notes given by the partnerships. 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).

Decedent died testate on Oct. 5, 1982, a resident of New Mexico. Held: The provision in decedent's will is a maximum marital deduction formula clause within the meaning of the transitional rule of sec. 403(e)(3), Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 305 (ERTA). Therefore, under such rule, decedent's estate is not entitled to an unlimited marital deduction.

P was a partner in a commodities brokerage firm. The partnership earned commissions for its services in effectuating customers' transactions in commodities futures. Held: Certain losses incurred by P on the sale of Treasury bill futures contracts were capital, and not ordinary, losses. P was not entitled to ordinary loss treatment under Corn Products Refining Co. v. Commissioner, 350 U.S. 46 (1955).

P, a corporation, held a 50.98-percent majority general partnership interest in GK, a limited partnership. Held: P's transfer of a portion of its partnership interest constitutes a sale or exchange of a partnership interest governed under secs. 741 and 1001, I.R.C. 1954.

Cash in the possession of petitioners was forfeited pursuant to sec. 302 of the Comprehensive Crime Control Act of 1984, 18 U.S.C. sec. 1963 (Supp. III 1986). Held: the relation-back provision of that section, vesting ownership in the cash in the United States upon the commission of the act giving rise to the forfeiture, does not preclude the amount of the cash from being includable in the gross income of petitioner.

This case is before us on remand from the U.S. Court of Appeals for the Eighth Circuit. Held: that the Arkansas dower statute was unconstitutional at the time the settlement agreement was reached. Held, further, that decedent's surviving spouse had an enforceable right, for purposes of the estate tax marital deduction, only to those properties taken through decedent's will.

Petitioners participated in a multiple-party equipment leasing transaction involving IBM computer equipment. Held: The transaction had a business purpose and economic substance. 2. Ownership of the equipment was transferred to petitioners. 3. Petitioners were at risk within the meaning of sec. 465, I.R.C. 1954, with respect to debt obligations associated with the transaction. 4.

R determined deficiencies in P's taxable income resulting from adjustments related to P's dealings with his own closely held corporation and with another publicly held corporation of which he was both an officer and a director. Held, P's misappropriation of funds through means of several land sales was properly includable in gross income. Held, further, P failed to adequately account under sec. 274, I.R.C. 1954, to his employer regarding business expenses which were reimbursed. Held, further: P's transfer of title to appreciated stock to a closely held corporation immediately before completing a negotiated sale is not respected for tax purposes. The capital gain from the sale of the stock is properly attributed to P under principles established in Commissioner v. Court Holding Co., 324 U.S. 331 (1945). Held, further: P's advances to his closely held corporation constitute contributions to capital to the corporation. No bad debt deduction under sec. 166(a), I.R.C. 1954, is allowed. Held, further, the deductibility of interest expenditures incurred on personal loans incurred to procure cash subsequently advanced to a closely held corporation is subject to limitation under sec. 163(d), I.R.C. 1954. Held, further: P is liable for additions to tax for fraud under sec. 6653(b), I.R.C. 1954. R need not establish that tax evasion was a primary motive of P, but may (and did) satisfy his burden of proof on this issue by showing that a tax-evasion motive played some part in P's conduct, including conduct designed to conceal another crime. Worcester v. Commissioner, 370 F.2d 713 (1st Cir. 1966), affg. in part and vacating in part (on another issue) T.C. Memo. 1965-199, followed. Held, further, P is liable for additions to tax under sec. 6654, I.R.C. 1954, for underpayment of estimated income tax.

A notice of final partnership administrative adjustment was issued to the tax matters partner of ER, a limited partnership. No petition was filed by the tax matters partner. Held: C is not entitled to the notice specified in sec. 6223(a), I.R.C. 1954, and is not a notice partner under sec. 6231(a)(8). Held, further, C is not entitled to file a petition on behalf of ER. Held, further, R's motion to dismiss is granted.

Petitioners refinanced their principal residence with a loan secured by such residence. Petitioners paid points of $ 4,440 from their own funds to obtain the loan. Held: petitioners must deduct such points ratably over the life of the loan. Sec. 461(g), I.R.C. 1954.

P failed to file Federal individual income tax returns and R prepared substitute returns in accord with sec. 6020(b), I.R.C. 1954. Held: the returns prepared by R do not obviate P's entitlement to deficiency procedures and do not constitute separate [returns] for purposes of sec. 6013(b).

X corporation and its officers were under grand jury investigation for tax offenses. X was charged in a 4-count information. Held: comity and judicial economy dictate that under the circumstances of this case we not review the order of another court. Held, further, X failed to prove that the District Court was misled by the Government in its motion to disclose grand jury materials.

A series of Forms 872 was executed on behalf of petitioners and respondent for the years in issue. Subsequently, Forms 872-A were executed on behalf of petitioners and respondent. Held: Forms 872-A do not expire by operation of law after a reasonable time. To the extent that McManus v. Commissioner, 65 T.C. 197 (1975), affd. 583 F.2d 443 (9th Cir. 1978), requires a different result, we will no longer follow it.

Held: Reasonable litigation costs denied because petitioner failed to exhaust administrative remedies, failed to show that it was the prevailing party in that it met the requirements of tit. 5, sec.… Held: Reasonable litigation costs denied because petitioner failed to exhaust administrative remedies, failed to show that it was the prevailing party in that it met the requirements of tit. 5, sec. 504(b)(1)(B), United States Code, and unduly protracted these proceedings.

P's husband, deceased, was the target of a grand jury investigation. R obtained grand jury materials pursuant to rule 6(e), Federal Rules of Criminal Procedure, prior to United States v. Baggot, 463 U.S. 476 (1983), and United States v. Sells Engineering, Inc., 463 U.S. 418 (1983). Subsequent to Baggot and Sells, R issued a statutory notice of deficiency based on the grand jury materials. In April 1986, the District Court that had supervised the grand jury modified its rule 6(e) order. The notice of deficiency on its face does not reveal the nature of the grand jury investigation or the extent or scope of its inquiry. The District Court was aware of the notice of deficiency prior to the modification of the rule 6(e) order. Held, the notice of deficiency is valid. Held, further, the District Court implicitly sanctioned R's use of grand jury materials in preparing the notice of deficiency, and it is, therefore, not arbitrary. R must establish particularized need before this Court to be able to disclose the grand jury materials. R's counsel was privy to the grand jury materials. Held, R's counsel's review of grand jury materials is not a new disclosure. Held, further, R's counsel may not disclose either what occurred before the grand jury or any specific document. Held, further, so long as no disclosure occurs, R's counsel may use grand jury materials in gathering proof of particularized need. Held, further, identifying potential sources of information and stating that they are unlikely to be useful does not constitute a showing of particularized need.

Ps were tried before a jury for income tax evasion for 1976 and 1977. Held: because of the fundamental dissimilarities in the principles which govern the litigation of these virtually identical fraud issues in criminal and civil trials, respondent has not had a full opportunity, Montana v. United States, 440 U.S. 147, 153 (1979), to litigate the fraud issue, and collateral estoppel is not appropriate.

R settled P's 1979 tax liability in 1985 in a previous case before this Court. Held: R had a full or fair opportunity to litigate the increased deficiency and the fraud issue in the prior case before this Court, and the doctrine of res judicata bars relitigation of 1979. Montana v. United States, 440 U.S. 147 (1979).

W and H filed joint Federal income tax returns for their 1975, 1976, and 1977 taxable years. Held: this Court lacks jurisdiction over the subject matter of taxable years 1975 and 1977 because the notice issued concerning those years was invalid as against W. Held, further, this Court lacks jurisdiction over the subject matter of taxable year 1976 because the petition with respect thereto was filed untimely.

P was given prior notice that, in the event that he failed to appear at trial, the Court might enter a decision against him. P failed to appear at trial. Held: R's motion for decision by default will be granted. Miller-Pocahontas Coal Co. v. Commissioner, 21 B.T.A. 1360 (1931), overruled.

R audited C, a partnership with the following partners and ownership percentages: P, an individual -- 3.5 percent; F, a partnership -- 67.8 percent; and eight other individuals --… Held: the lack of a named TMP on the FPAA in this case did not render it invalid. Held, further, the FPAA in this case provided adequate or minimal notice to C and C's designated TMP as contemplated under sec. 6223(a), I.R.C. 1954. Held, further, sec. 301.6223(a)-1T(a), Temporary Proced. & Admin.

P, a compulsive gambler, failed to report embezzled funds used for his gambling on his Federal income tax returns for taxable years 1981, 1982,… Held: R's refusal to grant a waiver of the sec. 6661 addition to tax pursuant to sec. 6661(c) is subject to judicial review. Held, further, the appropriate standard of review is whether R has abused his discretion. Held, further: R has not abused his discretion in this case. P is liable for the addition to tax pursuant to sec. 6661.

Petitioner, a Colorado corporation, was engaged in the business of selling new and used mobile homes at retail. Held: petitioner is required to report the entire participation interest in the year the consumer paper is sold to the finance company.

Applicant seeks to perpetuate the testimony of two witnesses under Rule 82, Tax Court Rules of Practice and Procedure. Held: this Court has the authority to protect the integrity of its Rules, regardless of the lack of objection by a party. Held, further, Rule 82 may not be used for discovery, and, where there are discovery aspects in an application to perpetuate testimony, the applicant must establish a substantial need to perpetuate testimony.

Petitioners invested in a real estate investment partnership that calculated accrued interest deductions relating to a long-term partnership loan on the basis of the Rule of 78's. Held: 1. Held: On the undisputed facts of this case, the use of the Rule-of-78's method of calculating accrued interest deductions relating to the long-term partnership loan does not result in a clear reflection of partnership income; 2.