1Cases of the following petitioners are consolidated

herewith: Lincoln Industries, Inc. and Subsidiaries, docket 

No. 1090-94; CGF Industries, Inc. and Subsidiaries, docket No.

2452-94; and Lincoln Industries, Inc. and Subsidiaries, docket

No. 15978-94.

T.C. Memo. 1999-45

UNITED STATES TAX COURT

CGF INDUSTRIES, INC. AND SUBSIDIARIES, ET AL.,1 Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 25343-93, 1090-94, Filed February 12, 1999. 

 2452-94, 15978-94.

Gale T. Miller, Laurence E. Nemirow, Robert S. Rich, and

John R. Wilson, for petitioners in docket Nos. 25343-93, 1090-94,

and 2452-94.

Patrick A. Jackman, Laurence E. Nemirow, Robert S. Rich, and

John R. Wilson, for petitioner in docket No. 15978-94.

Stephen M. Miller and Richard D. D'Estrada, for respondent.

MEMORANDUM OPINION

FAY, Judge: CGF Industries, Inc. (CGF), computes its income

on the basis of a fiscal year ending on March 31. For its 1988
- 2 -

through 1992 taxable years, CGF was the common parent of an

affiliated group of corporations making a consolidated return of

income. By notices of deficiency respondent determined deficiencies in Federal income taxes of the CGF affiliated group in

the following amounts:

Fiscal Year Ending Deficiency

 1988 $4,369,352

 1989 745,105

 1990 362,525

 1991 259,708

 1992 214,805

Likewise, Lincoln Industries, Inc. (Lincoln), uses a fiscal

year ending on March 31 to compute its income. For taxable years

1989 through 1993, Lincoln was the common parent of an affiliated

group of corporations making a consolidated return of income. By

notices of deficiency respondent determined deficiencies in

Federal income taxes of the Lincoln affiliated group in the

following amounts:

Fiscal Year Ending Deficiency

 1989 $294,285

 1990 562,953

 1991 562,653

 1992 562,306

 1993 578,561

 By order of this Court dated January 19, 1995, these cases

were consolidated for purposes of trial, briefing, and opinion. 

In a stipulation of partial settlement filed with the Court on

January 18, 1995, respondent conceded all deficiencies determined

against CGF and its subsidiaries for 1988, thus removing all

issues relating to the 1988 tax year from consideration in these
- 3 -

cases. This leaves in controversy the sole remaining issue for

our decision: whether CGF and Lincoln are entitled to amortize

the costs of acquiring term interests in partnerships where

related persons simultaneously acquired the remainder interests

in those partnerships.

The facts of these cases are fully stipulated. The

stipulation of facts, first supplemental stipulation of facts, 

stipulation of settled issues, and attached exhibits are incorporated herein by this reference. All section references are to

the Internal Revenue Code in effect for the taxable years in

issue, all Rule references are to the Tax Court Rules of Practice

and Procedure, and dollar amounts have been rounded to the nearest dollar, unless otherwise indicated. The facts necessary for

an understanding of these cases are as follows.

Background of CGF

CGF, a Kansas corporation since 1972, maintains its principal offices in Topeka, Kansas. It is a family-owned corporation;

most of its stock is held by trusts for the benefit of members of

that family. It has been engaged, directly and through its

subsidiaries, in various businesses, including agriculture,

petroleum, real estate, manufacturing, and cable television. As

of August 1, 1988, the following entities owned the class A

common voting stock of CGF:
- 4 -

2The relationships among CGF Industries, Inc. (CGF), and its

shareholder—family trusts and their beneficiaries are shown by

the following: The children of Ruth G. Fink, president of CGF

during July 1988, are Bruce G. Cochener, Diana C. Broze, and

Caroline A. Cochener. Each, including their mother, has a trust

(or, in some cases, multiple trusts) in his or her name, with

family members, within the meaning of sec. 318(a)(1)(A), as beneficiaries of the trusts. There are also trusts in the names of

Ruth G. Fink's husband (H. Bernerd Fink), stepdaughter (Marcia F.

Anderson), and grandchild (Joaquin D. Mason).

 Shareholder Ownership Percentage

Diana C. Broze Revocable Trust 18.258%

H. Bernerd Fink Revocable Trust 2.305 

Marcia F. Anderson Revocable Trust 2.784 

Ruth G. Fink Revocable Trust 38.893 

Curmudgeon Revocable Trust,

 Bruce G. Cochener, sole beneficiary 17.749 

Bruce G. Cochener Trust Number One 0.925 

Caroline A. Cochener Revocable Trust 17.255 

Bruce M. Bolene Revocable Trust 0.490 

Joaquin Mason Trust Number One 0.416 

BENECO, Inc., Bruce M. Bolene

 Revocable Trust, sole shareholder 0.925 

 Total 100.000 

During July 1988, the directors of CGF were the following

individuals:

 H. Bernerd Fink, chairman

 Ruth G. Fink

 Marcia F. Anderson

 Diana C. Broze

 Caroline A. Cochener

 Bruce G. Cochener

Ruth G. Fink also served as president of CGF in July 1988.2

Background of Lincoln

Lincoln, a Kansas corporation since 1972, maintains its

principal offices in Lincoln, Nebraska. It is a family-owned

corporation; most of its stock is held by trusts for the benefit

of members of that family. It has been engaged, directly and
- 5 -

3The relationships among Lincoln Industries, Inc. (Lincoln),

and its shareholder—family trusts and their beneficiaries are

shown by the following: George A. Lincoln, president of Lincoln

in calendar year 1988, and his wife, Olivia G. Lincoln, vice

president, each have trusts bearing their names, of which family

members, within the meaning of sec. 318(a)(1)(A), are the beneficiaries. There are also trusts in the names of their four

children, whose surnames are Johnson, Lincoln, Donlan, and

Hunter.

(continued...)

through its subsidiaries, in various businesses, including

agriculture, petroleum, and the wholesale and retail distribution

of textbooks and supplies.

As of December 9, 1988, the following entities owned

Lincoln's class A common voting stock:

 Shareholder Ownership Percentage

George A. Lincoln Revocable Trust 2.9525%

Olivia G. Lincoln Revocable Trust 48.3327 

Georgia L. Johnson Revocable Trust 12.1584 

Edward M. Lincoln Revocable Trust 12.1584 

Margaret L. Donlan Revocable Trust 12.1584 

Ann L. Hunter Revocable Trust 12.2396 

 Total 100.0000 

During calendar year 1988, the following individuals served

on Lincoln's board of directors:

 George A. Lincoln, chairman

 Olivia G. Lincoln

 Robert A. Page

 Georgia L. Johnson

 Edward M. Lincoln

 Margaret L. Donlan

 Ann L. Hunter

Serving also as Lincoln's officers during that year were George

A. Lincoln as president, Olivia G. Lincoln as vice president, and

Bill C. Macy as executive vice president and treasurer.3
- 6 -

3(...continued)

Familial ties also exist between CGF and Lincoln. Olivia G.

Lincoln and Ruth G. Fink, who served as president of CGF in July

1988, are sisters. Their brother is Willard Garvey, president of

a corporation named Garvey Industries, Inc.

4Robert A. Page was an investment adviser to CGF and

Lincoln. His role, however, extended beyond that of just an

adviser. Mr. Page served on Lincoln's board of directors, and

beginning calendar year 1988, he also served on Lincoln's

executive committee. Mr. Page's role was not a passive one. 

According to the minutes of the board's annual meeting convened

Oct. 8-10, 1987, Mr. Page "led an in-depth discussion regarding

the current and future operations of Lincoln Industries, Inc."

Mr. Page also has links to CGF and various family trusts. 

He was vice president of DICO, Inc., a company which merged into

CGF effective July 1, 1988, pursuant to a merger agreement and by

resolution of CGF's board of directors. Mr. Page also acted as

trustee, or in more instances, as successor trustee in a handful

of family trusts. According to the trust agreements, the successor trustee assumes the duties of trustee in the event of the

trustee's death or inability or unwillingness to serve.

5Throughout this opinion, we use the terms "split purchase",

"joint purchase", "joint asset acquisition", "joint asset

purchase", and "joint investment transaction" interchangeably to

mean a situation where person A and person B, for example, simultaneously acquire a present and a future interest in property,

respectively.

The Solicitation

By letter dated May 15, 1986, and an addendum dated March

30, 1988, Robert A. Page4 advised CGF and Lincoln's shareholders

on the benefits of a "split purchase of assets". According to

Mr. Page, the older generation would buy a life estate or term of

years, while the younger generation would purchase the remainder

interest. In the addendum, Mr. Page substituted the word

"corporation" for "older generation". In his words, the

objective of a split purchase5 was twofold: (1) To transmit

property to future generations without incurring a transfer tax
- 7 -

6Mr. Page was aware that, when a taxpayer attempts to carve

out a term interest in existing property for himself and transfer

the remainder interest to a third party, "the holder of the life

tenancy or the term interest," as he writes, "would not be able

(continued...)

cost; and (2) to extract corporate assets without incurring a

dividend or capital gains tax. The addendum stated that the

second described objective was the primary one. Indeed, Mr. Page

recognized early on that the overall purpose of the joint

purchase was transferring wealth to the remaindermen. As he

wrote in the May 15, 1986, letter:

The purchaser of the term interest or the life estate

has a lousy deal, which is really the purpose of the

transaction * * *. The objective is really the same as

in a private annuity, i.e., doing in the annuitants for

the benefit of the obligor, in this case it is doing in

the life tenant for the benefit of the remainderman.

Mr. Page regarded the joint purchase by a closely held corporation and its shareholders of, respectively, a life or income

interest and a remainder interest in property to be a favorable

device for meeting that objective.

Mr. Page, however, was aware of potential problems which

might frustrate a joint purchase, the most important for our

purposes being his statement about how a shareholder would fund

the remainder interest purchase. Mr. Page warned that "Simultaneous gifts of funds for the acquisition of the [remainder]

interest contain an element of risk in collapsing the transaction

into one of being a 'retained' interest rather than a 'purchased'

interest, in which case the favorable * * * tax results do not

occur."6 Mr. Page then offered his solution: "Gifts separated
- 8 -

6(...continued)

to amortize the cost of that interest for income tax purposes."

7Although the letter was addressed to Garvey Industries,

Inc., and its shareholders, CGF and Lincoln's shareholders

received similar letters from Mr. Page.

by time * * * would work." In the addendum of March 30, 1988, he

dismissed his prior concern altogether by what he called a

"break-through"; namely, the major decline in individual tax

rates. This would enable the shareholders to use corporate funds

to purchase the remainder interests, albeit at a small tax cost. 

More specifically, Mr. Page suggested having the corporation

declare dividends and make stock redemptions sufficient to

generate after-tax funds for the purchase of the remainder

interests.

In another letter dated April 6, 1988, Mr. Page described in

somewhat greater detail how the joint purchase transaction would

take shape.7 Partnerships would be formed, and, where a corporation purchased a term of years in such newly created partnerships, its shareholders, in turn, would purchase the remainder

interests. Attached to the letter, Mr. Page provided a partnership agreement form and supplemental agreements related thereto. 

In order to make their purchases, the shareholders would receive

a major portion of the funds "from the after-tax proceeds of a[n]

* * * extraordinary dividend". Although Mr. Page recognized that

the amount distributed would be subject to "the so-called double

tax * * *, i.e., once when earned by the corporation and again

when made available to the corporat[ion's] shareholders", his
- 9 -

words remained encouraging about the success of the transaction

because of the decrease in individual and corporate tax rates at

that time. Indeed, Mr. Page hastened a final decision by the

shareholders on whether to do the transaction or not, when he

wrote in the letter:

The extraordinary dividend route, with a top rate of

28%, is of course much more economical than the prior

50% tax rate. In addition, the 1987 Revenue Act * * *

could lead one to believe the utilization of the

proposed transaction may have a relatively short life. 

There is no question in my mind [that] the 28% tax

rate, an essential ingredient of the funding method, is

a short-term window of opportunity.

Mr. Page recognized that, to the corporation, the proposed

transaction was "'not good' in that for ten years all it receives

is the ordinary income of the partnership, and at the expiration

of the ten-year term, its entire initial investment * * *

disappears." But, as to the remaindermen, Mr. Page wrote:

assuming utilization of the after-tax proceeds from the

extraordinary dividend to pay for their remainder

interest, the effect is to extract cash from * * * [the

corporation] at an approximate 14% tax rate. In addition, if some of you wish for the remainder interest to

be acquired by your descendants or remote trusts, the

effect is to avoid both estate tax and generation

skipping tax if the holder is more than one generation

removed.

Mr. Page was careful to note that the success or failure of the

joint undertaking depended upon whether "the holders of the

remainder interests are * * * 'family members' and not

'strangers'." He then offered his final recommendation: the

shareholders, as a group, should participate in the purchase of

remainder interests in newly created partnerships.
- 10 -

8On July 22, 1988, by resolution of CGF's board of directors, CGF was authorized to purchase 10-year term interests in

five partnerships at an aggregate cost of $10,615,000. The

resolution also stated that a dividend in the amount of

$2,435,925 be paid 1 week later on July 29, 1988.

The CGF Partnerships

In July 1988, CGF formed five limited partnerships under the

Kansas Revised Limited Partnership Act: CGF One, L.P.; CGF Two,

L.P.; Santa Fe Partners, L.P.; Cloud Grey, L.P.; and Alpha One,

L.P. (collectively referred to as the CGF Partnerships).8 By

agreements (the CGF partnership agreements), the CGF Partnerships

created a general partner interest and a limited partner

interest. In all cases, the general partner owned partnership

interest A, and the limited partners owned partnership interest

B. The CGF partnership agreements also stated that the term of

each partnership would be 20 years.

CGF's shareholder–family trusts and, in one instance, a

partnership related to the trusts contributed cash to the CGF

Partnerships in exchange for partnership interest A. CGF, in its

own right, contributed cash in exchange for 10-year term

interests in partnership interest B. Its shareholders or, in

some cases, nonshareholder trusts and partnerships related to

CGF's shareholders, contributed cash for the remainder interests

in partnership interest B. For clarity and because the

remaindermen are either CGF shareholders or related thereto, all

the remaindermen are sometimes collectively referred to as the

CGF Family Trusts. A summary of the various entities making up
- 11 -

the CGF Partnerships and their respective contribution amounts is

attached to this opinion as appendix A.

The CGF partnership agreements provided that each partnership's net profits and losses were to be borne by the partners

in the same percentage as their capital contributions; namely, .1

percent by the holder of partnership interest A and the remaining

99.9 percent by partnership interest B. The CGF partnership

agreements also required each partnership to make annual distributions of income, pursuant to the Kansas Uniform Principal and

Income Act, and in accordance with the partners' interests in the

partnership.

Simultaneously with the execution of the CGF partnership

agreements, CGF and the CGF Family Trusts executed separate

agreements wherein they set down exactly how partnership interest

B would be owned. They agreed that CGF would be the owner of a

10-year term interest in partnership interest B, upon the

expiration of which it would become the sole property of the CGF

Family Trusts. During the period of its term interest, CGF was

entitled to all of the partnership income allocable to

partnership interest B, and, upon the expiration of the term

interest, the corporation was entitled to all accrued but unpaid

income.

CGF and the CGF Family Trusts contributed cash to the CGF

Partnerships in the following amounts in exchange for their

respective term and remainder interests in partnership interest

B:
- 12 -

Limited

Partnership

CGF One, L.P.

CGF Two, L.P.

Santa Fe Partners, L.P.

Cloud Grey, L.P.

Alpha One, L.P.

 Total

CGF

Contribution

$2,011,312

 1,817,938

 2,265,250

 2,265,250

 2,265,250

10,625,000

Trust

Contribution

$1,265,282

 1,143,632

 1,425,028

 1,425,028

 1,425,028

 6,683,998

Total

$3,276,594

 2,961,570

 3,690,278

 3,690,278

 3,690,278

17,308,998

The amount contributed was computed using the interest rate then

contained in the Federal Estate and Gift Tax Regulations for

valuing term and remainder interests. See sec. 20.2031-7, Estate

Tax Regs.; sec. 25.2512-5, Gift Tax Regs. 

In part, the money contributed by CGF's shareholders for

their remainder interests in partnership interest B came directly

from CGF via cash dividend distributions and stock redemptions. 

In June and July 1988, CGF made distributions totaling

$9,375,000. The table below summarizes CGF's distributions in

calendar year 1988 to those shareholders investing in the CGF

Partnerships, followed by their respective contribution amounts:
- 13 -

CGF One, L.P.

Recipient

H. Bernerd Fink Revocable Trust

Ruth G. Fink Trust Number One

Ruth G. Fink Charitable Trust Number One

Ruth G. Fink Partnership,1

 Ruth G. Fink Revocable Trust, Partner

 Total

June 15, 1988

Redemption

 (Pretax) 

-0-

-0-

-0-

-0-

July 28, 1988

Redemption

 (Pretax) 

-0-

-0-

-0-

-0-

July 29, 1988

Dividend

 (Pretax) 

$11,680

435,311

 15,427

 1,793

Total

 $11,680

 435,311

 15,427

 1,793

 464,211

Partnership

Contribution

 Amount 

 $12,620

 328,121

 277,641

 1,290

 619,672

CGF Two, L.P.

Marcia F. Anderson Revocable Trust

Robert J. Anderson Revocable Trust

Jane E. Anderson Revocable Trust

Nancy J. Anderson Revocable Trust

Robert J. Anderson, Custodian for

 Susan M. Anderson

Marcia F. Anderson Trust Number One

 Total

$255,145

 51,315

 163,680

 163,680

 163,680

 302,500

$230,890

-0-

-0-

-0-

-0-

-0-

 14,060

-0-

130,545

130,657

130,657

-0-

 500,095

 51,315

 294,225

 294,337

 294,337

 302,500

1,736,809 

 330,794

 34,220

 193,914

 193,914

 193,914

 193,914

 1,140,670

Santa Fe Partners, L.P.

Caroline A. Cochener Trust

Caroline A. Cochener Trust Number Two

Caroline A. Cochener Revocable Trust

Bruce M. Bolene Revocable Trust

 Total

127,380

-0-

706,365

 8,635

221,650

201,190

-0-

-0-

127,836

216,871

 38,047

 2,532

 476,866

 418,061

 744,412 

 11,167

1,650,506

 568,535

 284,268

 284,268 

 284,268

1,421,339 

Cloud Grey, L.P.

Diana C. Broze Revocable Trust

Vincent J. Broze Revocable Trust

Joaquin Mason Trust Number One

Joaquin Mason Trust Number Two

Vincent J. Broze, Custodian for

 Joaquin D. Mason

Diana C. Broze Trust Number Three

Diana C. Broze Trust Number Four

Diana C. Broze Trust Number Five

Diana C. Broze Trust Number Six

 Total

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

1,100,000

188,320

 8,635

115,940

-0-

187,550

-0-

-0-

-0-

-0-

 86,458

 10,127

 40,885

 144

 53,225

108,448

 54,224

151,827

-0-

 274,778

 18,762

 156,825

 144

 240,775

 108,448

 54,224

 151,827

1,100,000

2,105,783

 426,401

 28,427

 127,920

 56,854

 127,920

 28,427

 28,427

 28,427

 568,535

1,421,338 

Alpha One, L.P.

Alpha, L.P.,1

 Curmudgeon Revocable Trust, Partner

 Nancy M. Cochener Revocable Trust, Partner

 Bruce G. Cochener Trust Number One, Partner

 Bruce G. Cochener Trust Number Two, Partner

 Bruce G. Cochener Trust Number Three, Partner

 Bruce G. Cochener Trust Number Four, Partner

 Total

 Grand Total

277,695

 12,705

587,620

-0-

-0-

-0-

-0-

196,900

-0-

-0-

-0-

440,000

 9,842

-0-

413,671

 81,824

 20

-0-

 287,537

 209,605

1,001,291

 81,824

 20

 440,000

2,020,277

27,977,586

 188,585

 137,103

 658,400

 53,805

 14

_ 287,884

1,325,791

5,928,810

 1This entity, while itself not a shareholder of CGF, has (a) partner(s) that did own shares in CGF. Thus, viewing the

entity as an aggregate of its members, we list the separate contribution amount of such partner(s), along with any

distribution amounts made by CGF to the partner(s).

 2This amount reflects CGF's aggregate distributions in calendar year 1988 to shareholders who contributed to the CGF

Partnerships in exchange for the remainder interests in partnership interest B. Note that this amount is only $139,155

shy of the $7,838,431 of U.S. Government obligations that CGF disposed of in fiscal year 1989.

The Lincoln Partnerships

On March 31, 1988, Lincoln formed four general partnerships

under the laws of the State of Kansas: Lincoln Partnership #1;

Lincoln Partnership #2; Lincoln Partnership #3; and HFC
- 14 -

9At a special meeting of Lincoln's board of directors on

Feb. 12–16, 1988, Mr. Page moved, and the board unanimously

approved, that Lincoln "[make] available up to $6 million for the

purchase of separate 10-year term interests". Mr. Page then

offered a second motion to have Lincoln accept a tender offer of

160,000 shares of class B preferred stock at $34 per share

between Mar. 16 and Mar. 23, 1988, with payment not later than

Mar. 31, 1988. Once again, the board unanimously approved. On

Mar. 28, 1988, Lincoln distributed $5,440,000 in stock redemptions, 3 days before forming Lincoln Partnership #1, Lincoln

Partnership #2, Lincoln Partnership #3, and HFC Partnership.

10At a special meeting of Lincoln's board of directors on

Oct. 7–8, 1988, a motion was made by Mr. Page, and unanimously

carried, that Lincoln "purchase term interests in up to five

partnerships at an aggregate amount to be determined at a later

date." Mr. Page also moved that Lincoln distribute $5,500,000 in

dividends on Oct. 31, 1988. This motion, too, was unanimously

carried. Then, approximately 1 month after this board meeting,

another meeting of Lincoln's board of directors was held on Nov.

14, 1988, during which the board approved the purchase of term

interests in five additional partnerships for $21 million.

Partnership.9 On October 31, 1988, each general partnership was

reorganized as a limited partnership under the Kansas Revised

Limited Partnership Act. Then on December 9, 1988, Lincoln

formed five more partnerships under the Kansas Revised Limited

Partnership Act: Lincoln 88 Partnership, L.P.; Lincoln

Partnership #11, L.P.; Two Thousand Eight Partnership, L.P.;

Donlan Partnership #1, L.P.; and HFC2 Partnership, L.P.10 All

nine partnerships formed in March and December 1988 are

collectively referred to as the Lincoln Partnerships. The

partnership agreement for each Lincoln Partnership (the Lincoln

partnership agreements) is similar in many respects to the CGF

partnership agreements, in that it created a general partner

interest, partnership interest A, and a limited partner interest,

partnership interest B. Pursuant to the Lincoln partnership
- 15 -

agreements, the term of the first four partnerships created was

limited to 20 years, and the term of the last five partnerships

created was 30 years.

Lincoln's shareholder-family trusts contributed cash to the

Lincoln Partnerships in exchange for partnership interest A. 

Lincoln, in its own right, contributed cash in exchange for 10-

year term interests in four Lincoln Partnerships and 20-year term

interests in the remaining five Lincoln Partnerships (collectively referred to as the Lincoln term interests). Lincoln's

term interests were, in all cases, designated term interests in

partnership interest B. Lincoln's shareholder-family trusts or,

in one instance, a limited partnership related to the former

contributed cash for the remainder interests in partnership

interest B. For convenience, all the remaindermen in the Lincoln

Partnerships are sometimes collectively referred to as the

Lincoln Family Trusts. The list of entities making up the

Lincoln Partnerships and their respective contribution amounts is

attached to this opinion as appendix B.

The Lincoln partnership agreements required the partners to

bear their respective partnerships' net profits and losses in the

same percentage as their capital contributions. Thus, six of the

Lincoln partnership agreements allocated 1 percent of net profits

and losses to the holder of partnership interest A and the

remaining 99 percent to partnership interest B, while the other

three Lincoln partnership agreements, like the CGF partnership

agreements, allocated .1 percent to partnership interest A and
- 16 -

the remaining 99.9 percent to partnership interest B. The

Lincoln Partnerships, like their CGF counterparts, were also

required to make annual distributions of income, pursuant to the

Kansas Uniform Principal and Income Act, and in accordance with

the partners' interests in the partnerships.

Simultaneously with the execution of the Lincoln partnership

agreements, Lincoln and the Lincoln Family Trusts executed

separate agreements for each partnership detailing how

partnership interest B would be owned. Four of the nine

agreements stated that Lincoln would own partnership interest B

during the first 10 years of forming the partnership, after which

partnership interest B would become the sole property of the

Lincoln Family Trusts. The remaining five agreements stated that

Lincoln would own partnership interest B for a term of 20 years

from the date of its capital contribution, after which the

Lincoln Family Trusts would become sole owners of the interest. 

During the period of the Lincoln term interests, Lincoln would be

entitled to all of partnership interest B's share of partnership

distributions.

Lincoln and the Lincoln Family Trusts made the following

cash contributions to the Lincoln Partnerships in exchange for

their respective term and remainder interests in partnership

interest B:
- 17 -

11During January 1988, when Lincoln called $6,427,135 worth

of its class A preferred stock, it also made a cash withdrawal of

$6,600,000 from its capital account with Net Venture (capital

withdrawal). On Mar. 28, 1988, the same day that Lincoln

redeemed $5,440,000 worth of its stock, it also made a $5,500,000

capital withdrawal. A few days later, on Mar. 31, 1988, Lincoln

made another capital withdrawal of $6,800,000. Less than 1 month

(continued...)

Limited

Partnership

Lincoln Partnership #1, L.P.

Lincoln Partnership #2, L.P.

Lincoln Partnership #3, L.P.

HFC Partnership, L.P.

Lincoln 88 Partnership, L.P.

Lincoln Partnership #11, L.P.

Two Thousand Eight Partnership, L.P.

Donlan Partnership #1, L.P.

HFC2 Partnership, L.P.

 Total

Lincoln

Contribution

$1,500,000

 1,500,000

 1,500,000

 1,500,000

 3,360,000

 4,410,000

 4,410,000

 4,410,000

 4,410,000

27,000,000

Term

Interest

10 years

10 years

10 years

10 years

20 years

20 years

20 years

20 years

20 years

Trust

Contribution

 $941,180

 941,180

 941,180

 941,009

 586,645

 769,972

 769,972

 769,972

 769,972

7,431,082

Total

$2,441,180

 2,441,180

 2,441,180

 2,441,009

 3,946,645

 5,179,972

 5,179,972

 5,179,972

 5,179,972

34,431,082

In calculating the contribution amounts, Lincoln and the Lincoln

Family Trusts used the actuarial tables set forth in the Federal

Estate and Gift Tax Regulations to value their respective term

and remainder interests.

The cash contributed by Lincoln's shareholders for their

remainder interests in partnership interest B came, in part, from

Lincoln via cash dividend distributions and stock redemptions. 

In March, July, and October 1988, Lincoln made distributions

totaling $12,040,000. At the beginning of the year, in January,

1988, Lincoln also called 116,857 shares of its class A preferred

stock in the amount of $6,427,135. Thus, during calendar year

1988, Lincoln engaged in stock transactions totaling $18,467,135. 

Lincoln funded this amount by withdrawing money from its investment in Net Venture, a partnership investing solely in U.S.

Government obligations.11 See discussion of Net Venture, infra. 
- 18 -

11(...continued)

before declaring a $1,100,000 dividend on June 1, 1988, Lincoln

made two more capital withdrawals totaling $10 million, one on

May 6, 1988, in the amount of $5 million, and the other on May

17, 1988, also of $5 million. On Oct. 31, 1988, the same day

that Lincoln paid a $5,500,000 dividend to its shareholders,

another $1,305,000 withdrawal was charged to Lincoln's capital

account with Net Venture.

The following is a summary of Lincoln's distribution activity and

the corresponding contribution amounts paid by Lincoln's shareholders for their remainder interests in the Lincoln Partnerships:
- 19 -

Lincoln Partnership #1, L.P.

Recipient

Georgia L. Johnson Revocable Trust

Georgia L. Johnson Trust Number Four

 Total

Jan. 1988

Call Option

 (Pretax) 

$1,164,295

-0-

Mar. 1988

Redemption

 (Pretax) 

$1,360,000

-0-

June 1988

Dividend

 (Pretax) 

$45,163

 24,587

Oct. 1988

Dividend

 (Pretax) 

$249,314

 122,936

Total

 $2,818,772

 147,523

 2,966,295

Partnership

Contribution

 Amount 

 $938,739

 2,441

 941,180

Lincoln Partnership #2, L.P.

Edward M. Lincoln Revocable Trust

Edward M. Lincoln Trust Number Two 

Edward M. Lincoln Trust Number Three

Edward M. Lincoln Trust Number Seven

Lincoln Family Trust Number Two

 Total

 1,170,235

-0-

-0-

-0-

-0-

 474,028

 35,972

-0-

 510,000

 340,000

 45,829

 4,766

 47,511

-0-

38,895

 252,642

 23,831

 237,558

-0-

 194,475

 1,942,734

 64,569

 285,069

 510,000

 573,370

 3,375,742

 117,647

 235,295

 235,295

 117,647

 235,295

 941,179

Lincoln Partnership #3, L.P.

Margaret L. Donlan Revocable Trust

Margaret L. Donlan Trust Number Five

 Total

 675,235

 495,000

 1,360,000

-0-

 45,559

-0-

 251,293

-0-

 2,332,087

 495,000

 2,827,087

 739,782

 201,397

 941,179

HFC Partnership, L.P.

Ann L. Hunter Trust Number Two

Lincoln Family Trust Number Four

 Total

-0-

-0-

-0-

 1,360,000

 167

 36,405

 1,292

 182,025

 1,459

 1,578,430

 1,579,889

 37,640

 903,369

 941,009

Lincoln 88 Partnership, L.P.

Olivia G. Lincoln Revocable Trust

Olivia G. Lincoln Trust Number One

Olivia G. Lincoln Trust Number Two

Olivia G. Lincoln Trust Number Three

Olivia G. Lincoln Trust Number Four

George A. Lincoln Trust Number One

George A. Lincoln Trust Number Two

George A. Lincoln Trust Number Three

 Total

 1,358,170

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

 8,824

 20,028

 20,028

 20,028

 20,028

 7,112

 7,112

 7,112

 44,121

 100,140

 100,140

 100,140

 100,140

 35,559

 35,559

 35,559

 1,411,115

 120,168

 120,168

 120,168

 120,168

 42,671

 42,671

 42,671

 2,019,800

 170,127

 82,130

 82,130

 82,130

 82,130

 29,332

 29,332

 29,332

 586,643

Lincoln Partnership #11, L.P.

Georgia L. Johnson Revocable Trust

Georgia L. Johnson Trust Number Two

 Total

1

-0-

1

-0-

1

 53,465

1

 267,327

1

 320,792

 320,792

 269,490

 223,292

 492,782

Two Thousand Eight Partnership, L.P.

Edward M. Lincoln Revocable Trust

Edward M. Lincoln Trust Number Two

Edward M. Lincoln Trust Number Three

Edward M. Lincoln Trust Number Four

Edward M. Lincoln Trust Number Five

Edward M. Lincoln Trust Number Six

Lincoln Family Trust Number Two

 Total

1

1

1

 -0-

 -0-

 -0-

 

1 

1

1

1

 -0-

 -0-

 -0-

 

1 

1

1

1

 11,522

 27,483

 47,512

 

1 

1

1

1

 57,608

 137,417

 237,558

 

1 

 

1

 

1

 

1

 69,130

 164,900

 285,070

 

1 

 519,100

 123,196

 19,249

 160,154

 46,198

 115,496

 200,193

 105,486

 769,972

Donlan Partnership #1, L.P.

Margaret L. Donlan Revocable Trust

Margaret L. Donlan Trust Number Two

Margaret L. Donlan Trust Number Three

Margaret L. Donlan Trust Number Five

 Total

1

 -0-

 -0-

 

1 

1

 -0-

 -0-

 

1 

1

 29,314

 72,455

 

1 

1

 146,569

 362,276

 

1 

 

1

 175,883

 434,731

 

1 

 610,614

 415,785

 121,271

 115,496

 177,421

 829,973

HFC2 Partnership, L.P.

Ann L. Hunter Revocable Trust

Ann L. Hunter Trust Number Three

Ann L. Hunter Trust Number Four

Ann L. Hunter Trust Number Twenty-six

 Total

 Grand Total

 654,500

 -0-

 -0-

 605,000

-0-

-0-

-0-

-0-

 74,268

 81,324

 45,690

 -0-

 394,381

 406,620

 228,451

-0-

 1,123,149

 487,944

 274,141

 605,000

 2,490,234

216,709,553

 269,490

 307,989

 153,994

 38,499

 769,972

 7,213,889

 

1As this trust is also a remainderman in another Lincoln Partnership, the distribution amount is not noted here since

it has already been recorded above. This is necessary to avoid counting twice the same distribution amount.

 

2This amount reflects Lincoln's aggregate distributions in calendar year 1988 to shareholders who contributed to the

Lincoln Partnerships in exchange for the remainder interests in partnership interest B.
- 20 -

Partnership Investments

The CGF and Lincoln Partnerships invested the partners'

capital contributions, directly and through investment partnerships, in U.S. Government bonds, short-term fixed income

obligations, and marketable securities, and in various

businesses, including precious metals, real estate, natural gas,

and hotel management. During CGF's taxable years in issue, the

CGF Partnerships, when examined collectively, invested most of

their assets in the following four investment partnerships: Net

Venture, Gopher Fund, Lake Union Hotel Associates Ltd. Partnership (Lake Union), and GAR Ninety. The specific dollar amounts,

with corresponding percentage figures in parentheses, that each

CGF Partnership invested in the above–mentioned investment

partnerships are set forth in appendix C.

During Lincoln's taxable years in issue, the Lincoln Partnerships, when taken as a whole, invested most of their assets in

Net Venture, Gopher Fund, Gill Industries, L.P., and Falcon Fund. 

Appendix D is a table showing the dollar amounts, with corresponding percentage figures in parentheses, that each Lincoln

Partnership invested in the investment partnerships just listed.

Net Venture was a general partnership formed on November 29,

1985, between a corporation named Garvey, Inc., with Robert A.

Page as president, and four trusts; i.e., Olive W. Garvey

Revocable Trust, Ruth G. Fink Revocable Trust, Olivia G. Lincoln

Revocable Trust, and George A. Lincoln Revocable Trust. 

According to its partnership agreement, its business purpose was
- 21 -

12On Mar. 31, 1992, Net Venture's partnership agreement was

amended to provide that the maximum maturity of any investment

would be 5 years, and the maximum average maturity of all of its

investments would not exceed 3 years.

investing solely "in direct obligations of the United States

Government, with the exception of very short–term temporary

investments in other fixed income type instruments pending

investment in direct United States obligations." The partnership

agreement states further that the maximum maturity of any

instrument will be 3 years.12

The Gopher Fund was a general partnership formed on

January 2, 1981, to invest in securities. Among its founding

partners were Garvey, Inc., with Robert A. Page as president,

numerous trusts bearing the Garvey name, and a few CGF shareholders.

Lake Union, a limited partnership formed on December 1,

1989, to acquire, develop, operate, and manage hotels, had four

CGF Partnerships as limited partners; namely, CGF One, L.P., CGF

Two, L.P., Cloud Grey, L.P., and Alpha One, L.P.

GAR Ninety, a general partnership between Garvey, Inc., and

GAR Four, a partnership of which Garvey, Inc., was managing

partner, was formed on June 17, 1988. Under the GAR Ninety

partnership agreement, Robert A. Page's name was the only one

required as a signatory to the agreement. GAR Ninety's business

purpose was "making investments in gold, and pending such

investments, direct obligations of the United States Government,

or Partnerships so investing, with the exception of very short-
- 22 -

term temporary investments in other fixed income type instruments."

Gill Industries, L.P., formed on June 19, 1989, by two

Lincoln shareholder-family trusts, a non-shareholder-family

trust, and two Lincoln Partnerships, was in the sheet metal

business. Falcon Fund was a general partnership formed on

January 31, 1991, to invest in securities. Its founding partners

were Mosby Lincoln, Inc., a Kansas corporation, two Lincoln

Partnerships, and a Lincoln shareholder–family trust.

Financial Performance of the CGF and Lincoln Partnerships

On CGF's Federal income tax returns for the taxable years

ending March 31, 1989 through 1992, CGF reported the income and

expenses of owning term interests in the CGF Partnerships as

follows:
- 23 -

CGF One, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

CGF Two, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Santa Fe Partners, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Cloud Grey, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Alpha One, L.P.

 Income (or loss)

 Expenses 1

 Amortization expense

 Net income or loss

 Mar. 31,

 1989 

$87,610

 (9,113)

(134,088)

 (55,591)

 82,625

 (7,044)

(121,196)

 (45,615)

106,683

 (10,453)

(151,017)

 (54,787)

102,808

 (10,336)

(151,017)

 (58,545)

109,328

 (8,045)

(151,017)

 (49,734)

 Mar. 31,

 1990 

$247,242

 (22,926)

(201,131)

 23,185

 233,708

 (19,828)

(181,794)

 32,086

 294,733

 (22,883)

(226,525)

 45,325

 291,338

 (24,333)

(226,525)

 40,480

 281,435

 (35,338)

(226,525)

 19,572

 Mar. 31,

 1991 

$225,118

 (21,654)

(201,131)

 2,333

 214,574

 (18,383)

(181,794)

 14,397

 269,836

 (24,046)

(226,525)

 19,265 

 264,831

 (22,992)

(226,525)

 15,314

 (42,355)

 (16,421)

(226,525)

 (285,301)

 Mar. 31,

 1992 

$186,311

 (20,373)

(201,131)

 (35,193)

 179,041

 (18,147)

(181,794)

 (20,900)

 226,920

 (22,453)

(226,525)

 (22,058)

 215,715

 (21,873)

(226,525)

 (32,683)

 (280,272)

 (7,169)

(226,525)

 (513,966)

Totals

$746,281

 (74,066)

(737,481)

 (65,266)

 709,948

 (63,402)

(666,578)

 (20,032)

 898,172

 (79,835)

(830,592)

 (12,255)

 874,692

 (79,534)

(830,592)

 (35,434)

 68,136

 (66,973)

(830,592)

 (829,429)

 

1These amounts reflect CGF's allocations of portfolio income expense and investment interest expense,

as reflected on CGF's Schedules K-1 for the years in issue.

Over this 4-year period, CGF's total amortization deductions

exceeded its allocations of partnership income by $598,606

(income of $3,297,229 and amortization deductions of $3,895,835). 

Respondent disallowed all of CGF's amortization deductions in

connection with owning term interests in partnership interests B

for such years.

Lincoln reported the following income and expenses of owning

term interests in the Lincoln Partnerships for the taxable years

ending March 31, 1989 through 1993:
- 24 -

Lincoln

Partnership #1, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Lincoln

Partnership #2, L.P.

 Income

 Expenses

 Amortization expense

 Net income or loss

Lincoln

Partnership #3, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

HFC Partnership, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Lincoln 88 Partnership, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Lincoln

Partnership #11, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

Two Thousand Eight

Partnership, L.P. 

 Income

 Expenses

 Amortization expense

 Net income or loss

Donlan

Partnership #1, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

HFC2 Partnership, L.P.

 Income

 Expenses 1

 Amortization expense

 Net income or loss

 Mar. 31,

 1989 

$149,050

 (15,127)

(150,000)

 (16,077)

 149,136

 (14,531)

(150,000)

 (15,395)

 149,038

 (14,535)

(150,000)

 (15,497)

 149,060

 (39,298)

(150,000)

 (40,238)

 26,756 

 (5,824)

(42,000)

 (21,068)

 57,738

 (9,499)

(55,125)

 (6,886)

 11,181

 (1,552)

(55,125)

 (45,496)

 11,181

 (1,586)

(55,125)

 (45,530)

 11,226

 (51,336)

(55,125)

 (95,235)

 Mar. 31,

 1990 

$198,129

 (13,252)

(150,000)

 34,877

 221,869

 (46,993)

(150,000)

 24,876

 200,833

 (30,951)

(150,000)

 19,882

 125,176

 (67,798)

(150,000)

 (92,622)

 343,078

 (20,970)

(168,000)

 154,108

 473,567

 (41,996)

(220,500)

 211,071

 469,729

 (39,747)

(220,500)

 209,482

 469,741

 (60,338)

(220,500)

 188,903

 267,163

(132,790)

(220,500)

 (86,127)

 Mar. 31,

 1991 

$187,277

 (12,476)

(150,000)

 24,801

 209,500

 (36,626)

(150,000)

 22,874

 203,125

 (52,987)

(150,000)

 138

 48,272

 (60,875)

(150,000)

(162,603)

 356,683

 (19,566)

(168,000)

 169,117

 454,991

 (25,881)

(220,500)

 208,610

 454,248

 (76,534)

(220,500)

 157,214

 461,009

 (91,066)

(220,500)

 149,443

 137,798

(118,742)

(220,500)

(201,444)

 Mar. 31,

 1992 

$169,864

 (34,994)

(150,000)

 (15,130)

 163,287

 (36,584)

(150,000)

 (23,297)

 186,726

 (46,259)

(150,000)

 (9,533)

 81,548

 (60,994)

(150,000)

(129,446)

 326,129

 (18,513)

(168,000)

 139,616

 422,188

 (81,238)

(220,500)

 120,450

 381,249

 (76,202)

(220,500)

 84,547

 423,668

 (89,907)

(220,500)

 113,261

 187,255

(118,573)

(220,500)

(151,818)

 Mar. 31,

 1993 

$116,424

 (38,341)

(150,000)

 (71,917)

 129,907

 (38,645)

(150,000)

 (58,738)

 127,427

 (40,085)

(150,000)

 (62,658)

 139,338

 (41,798)

(150,000)

 (52,460)

 284,163

 (19,875)

(168,000)

 96,288

 357,760

 (82,297)

(220,500)

 54,963

 302,874

 (78,240)

(220,500)

 4,134

 296,173

 (75,460)

(220,500)

 213

 287,858

 (76,472)

(220,500)

 (9,114)

Totals

 820,744

 (114,190)

(750,000)

 (43,446)

 873,699

 (173,379)

(750,000)

 (49,680)

 867,149

 (184,817)

(750,000)

 (67,668)

 543,394

 (270,763)

(750,000)

 (477,369)

1,336,809

 (84,748)

 (714,000)

 538,061

1,766,244

 (240,911)

 (937,125)

 588,208

1,619,281

 (272,275)

 (937,125)

 409,881

1,661,772

 (318,357)

 (937,125)

 406,290

 891,300

 (497,913)

(937,125)

 (543,738)

 

1These amounts reflect Lincoln's allocations of portfolio income expense and investment interest

expense, as reflected on Lincoln's Schedules K-1 for the years in issue.

Over this 5-year period, Lincoln's allocations of partnership

income exceeded its amortization deductions by $2,917,892 (income

of $10,380,392 and amortization deductions of $7,462,500). 
- 25 -

Respondent disallowed all of Lincoln's amortization deductions in

connection with owning the Lincoln term interests.

Discussion

The issue we must decide is whether CGF and its subsidiaries

and Lincoln and its subsidiaries are entitled to amortize their

costs of acquiring term interests in partnerships. Petitioners

argue that they acquired expiring interests in property, and,

since their interests are wasting assets, that they are entitled

to recover their costs through amortization deductions. Petitioners go on to argue that they and the Family Trusts (meaning

the CGF Family Trusts and the Lincoln Family Trusts collectively)

engaged in arm's-length transactions since petitioners acquired

only term interests in partnerships and based their purchase

prices on present value tables then contained in the Federal

regulations.

Respondent contends that petitioners and the Family Trusts

engaged in a tax scheme whose main purpose was to extract money

from the corporations without the incidence of taxation. Respondent asserts that the transactions lacked business purpose and

economic substance since petitioners had no reasonable expectation of making a profit. Respondent argues further that, since

petitioners supplied a substantial portion of the money used to

acquire the remainder interests, the substance of the transactions was the acquisition by petitioners of partnership interests

B in their entirety and a carving out of the remainders to the

Family Trusts. Thus, respondent concludes that petitioners have
- 26 -

13An exception to the general rule is sec. 167(e) (as

amended and in effect currently), which prohibits a taxpayer from

amortizing a term interest where a related person holds the

remainder interest. This section, however, applies only to term

interests acquired or created after July 27, 1989. Since petitioners' term interests were created before that date, sec.

167(e) is inapplicable to the present cases.

attempted to create amortization deductions by impermissibly

splitting nondepreciable assets; namely, partnership interests in

newly created partnerships. Petitioners counter that the substance of the transactions coincides with its form in that they

and the Family Trusts separately acquired their respective term

and remainder interests with separate funds.

As a general rule, a taxpayer who purchases a term interest

in property which is used in a trade or business or held for the

production of income is entitled to deduct ratably the cost of

that interest over its expected life.13 See, e.g., Early v.

Commissioner, 445 F.2d 166, 169 (5th Cir. 1971), revg. on another

ground 52 T.C. 560 (1969); Manufacturers Hanover Trust Co. v.

Commissioner, 431 F.2d 664 (2d Cir. 1970), affg. T.C. Memo. 1969-

132; 1220 Realty Co. v. Commissioner, 322 F.2d 495, 498 (6th Cir.

1963), affg. in part and revg. in part T.C. Memo. 1962-67. This

principle applies even though the property underlying the term

interest is not depreciable. See, e.g., Early v. Commissioner,

supra; Manufacturers Hanover Trust Co. v. Commissioner, supra;

1220 Realty Co. v. Commissioner, supra; Elrick v. Commissioner,

56 T.C. 903 (1971), revd. on another ground 485 F.2d 1049 (D.C.

Cir. 1973). It is also clear that, where a taxpayer, without
- 27 -

14This rule is often referred to as the step transaction

doctrine.

additional investment, divides nondepreciable property into two

parts, one of them being a term interest, amortization deductions

are not allowable. Lomas Santa Fe, Inc. v. Commissioner, 693

F.2d 71 (9th Cir. 1982), affg. 74 T.C. 662 (1980); United States

v. Georgia R.R. & Banking Co., 348 F.2d 278, 287-289 (5th Cir.

1965); Gordon v. Commissioner, 85 T.C. 309 (1985).

In these cases, the properties in question are partnership

interests, a type of property generally considered to be nonamortizable. In form, petitioners acquired term interests in

limited partnerships, while the Family Trusts acquired the

remainders. We must decide whether the transactions are in

substance what they appear to be in form.

The precedents in Kornfeld v. Commissioner, 137 F.3d 1231

(10th Cir. 1998), affg. T.C. Memo. 1996-472, and Gordon v.

Commissioner, supra, require examination of all the singular

steps of a joint asset purchase to determine whether, in

substance, one party acquired full ownership of property and

carved out a remainder interest for related parties, or whether

related parties separately, and yet simultaneously, acquired term

and remainder interests in property, respectively. It is a wellsettled principle that formally separate steps in an integrated

series, focused toward a particular result, may be amalgamated

and treated as part of a single transaction.14 See Kornfeld v.

Commissioner, supra at 1235 (citing Commissioner v. Clark, 489
- 28 -

U.S. 726, 738 (1989)); Gordon v. Commissioner, supra at 324

(citing Commissioner v. Court Holding Co., 324 U.S. 331, 334

(1945); Helvering v. Clifford, 309 U.S. 331, 334 (1940); Griffiths v. Helvering, 308 U.S. 355, 357-358 (1939); Professional

Servs. v. Commissioner, 79 T.C. 888, 913 (1982)).

While we are not required to sustain respondent's determinations solely because tax reasons affected the way in which

petitioners structured the transaction, see Kornfeld v. Commissioner, T.C. Memo. 1996-472, petitioners have the burden of

proving that respondent's determinations are erroneous, Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Where, as

here, the parties to the transactions are related, the level of

skepticism as to the form of the transaction is heightened,

"because of the greater potential for complicity between related

parties in arranging their affairs in a manner devoid of legitimate motivations." Vaughn v. Commissioner, 81 T.C. 893, 908

(1983) (citing Bowen v. Commissioner, 78 T.C. 55, 78 (1982),

affd. 706 F.2d 1087 (11th Cir. 1983)).

We have confronted this same issue several times before in a

variety of contexts. In deciding these cases, we have undertaken

an intensely factual analysis of the substance of each

transaction. See, e.g., Kornfeld v. Commissioner, T.C. Memo.

1996-472; Gordon v. Commissioner, supra at 326-327; Lomas Santa

Fe, Inc. v. Commissioner, 74 T.C. at 681. Therefore, we believe

a brief review of the cases previously decided will paint a more
- 29 -

complete picture and identify factors leading to our decision

herein.

In United States v. Georgia R.R. & Banking Co., supra, the

corporate taxpayer had leased certain of its stock holdings to a

third party for 99 years in return for $600,000 annually. 

Approximately 73 years into the lease, the taxpayer distributed

its reversionary interest in the stock to its shareholders as a

dividend in kind. Thus the corporation retained its present

right to the lease payments, while its shareholders received a

remainder interest in the stock itself. The taxpayer then sought

to amortize over the remaining term of the lease its adjusted

basis in the stock, after charging off that portion of basis

representing the transferred remainder interest. After noting

that the underlying property would not have been exhausted when

the lease finally terminated, the court held that the leasehold

the taxpayer had created was not depreciable, inasmuch as the

taxpayer had incurred no additional costs in obtaining it. The

court also concluded that the dividend distribution of the

reversion also did not make the retained "lease" a depreciable

asset. In the words of the court: "By distributing the

reversion in 1954, taxpayer did nothing more than split its

bundle of property rights into two parts. We cannot see how this

action on its part can result in a depreciable asset where none

previously existed, unless it made some additional investment." 

Id. at 288.
- 30 -

In Lomas Santa Fe, Inc. v. Commissioner, 693 F.2d 71 (9th

Cir. 1982), the corporate taxpayer purchased land in fee simple

on which it planned to develop a luxury community. For State law

reasons, the taxpayer formed a subsidiary and transferred that

portion of the land designated as a golf course and country club

to the subsidiary, while retaining a 40-year term interest in the

golf course. The taxpayer then sought to amortize its basis in

the term interest over 40 years. Relying on United States v.

Georgia R.R. & Banking Co., supra, the court held that a taxpayer

who holds nondepreciable property (the golf course) in fee simple

may not create a depreciable asset by carving out a term interest

for itself and conveying the remainder to a third party.

Gordon v. Commissioner, supra, presented a somewhat

analogous situation to the one at hand. Dr. Gordon, the taxpayer, had established a family trust for the benefit of his

minor children. Upon the advice of his lawyers, he agreed to

participate in an investment scheme geared for professionals

having qualified pension or profit-sharing trusts. The arrangement called for joint purchases of tax-exempt bonds. The professional would purchase at fair market value a life estate in

the bond, and the trust would purchase the remainder interest. 

According to Dr. Gordon's lawyers, it would give him "'a substantial tax-free cash flow during his life, a proportionate tax

deduction over his life expectancy of his cost of acquisition,

and a reduction of his taxable estate.'" Id. at 311.
- 31 -

Under the arrangement, Dr. Gordon purchased life interests

in tax-exempt bonds, while the family trust simultaneously purchased the remainder interests, with the funds provided, in large

part, by Dr. Gordon. The taxpayer then sought to amortize the

cost of his income interest ratably over his expected life. We

held that, while, in form, the taxpayer had acquired a depreciable income interest, in substance, he purchased full ownership

of the bonds and donated the remainder interests to the trust. 

Id. at 330-331.

Invoking the step transaction doctrine to ignore the shift

of funds from Dr. Gordon to the family trust, the Court concluded

that "Dr. Gordon bought the whole bonds, using the family trust

as a mere stopping place for a portion of their purchase prices." 

Id. at 328. We reasoned further that, although the trust owned

stock holdings which would have provided it with sufficient cash

to participate in the joint bond purchases, "the trust made no

real purchases, but was merely a way station for the accumulation

of cash provided for the most part by * * * [Dr. Gordon]." Id.

Consequently, applying the rationale of Lomas Santa Fe, Inc. v.

Commissioner, supra, and United States v. Georgia R.R. & Banking

Co., 348 F.2d 278 (5th Cir. 1965), we disallowed Dr. Gordon's

amortization deductions of his life interests in the bonds.

Kornfeld v. Commissioner, 137 F.3d 1231 (10th Cir. 1998),

was another case involving amortization of a life interest in

bonds. Julian Kornfeld, an experienced tax attorney, believed he

could structure a transaction which would give him income,
- 32 -

estate, and gift tax benefits. His method was to enter into

agreements with his daughters to buy tax-exempt bonds, with

Mr. Kornfeld buying a life estate and his daughters buying the

remainder interests. Mr. Kornfeld, acting through a revocable

trust of which he was trustee, executed two such agreements,

after which Congress added a provision to the Federal tax law

disallowing the amortization of a term interest where the

remainder interest is held by a related party. See supra note

13. Aware of this change, Mr. Kornfeld amended the later

agreements to provide that one of his daughters would take a

second life estate in the bonds, and his long-time secretary

would take the remainder interest.

Mr. Kornfeld used the valuation tables published by the

Internal Revenue Service for estate and gift tax purposes to

calculate the respective values of the interests. He then

furnished his daughters and secretary with the amounts necessary

to purchase their interests and filed gift tax returns reflecting

those amounts. Thus, as recipients of the gifts, they were not

under any legal obligation to use that money to do the joint

asset purchase. As planned, though, they did participate, and

Mr. Kornfeld began amortizing ratably over his expected life his

cost of acquiring life interests in the bonds.

In analyzing the tax consequences, the Court of Appeals for

the Tenth Circuit, the court to which appeals by petitioner CGF

Industries, Inc. and Subsidiaries would generally lie, stepped

together the intermediate transactions that Mr. Kornfeld
- 33 -

employed, and affirmed our holding that Mr. Kornfeld had acquired

full ownership in the bonds and then made a gift of the remainder

interests to his daughters and secretary. Id. at 1235. We

noted, and the Court of Appeals agreed, that the ability of

Mr. Kornfeld's daughters and secretary to use for other purposes

the funds he had given them was of minimal significance since the

parties operated under an understanding that the joint investment

would take place. Id. Thus, the transaction in question was an

impermissible attempt to create amortizable term interests out of

nondepreciable property, and the amortization deductions claimed

by Mr. Kornfeld were, accordingly, disallowed.

The last case, for our purposes, in this line is Richard

Hansen Land, Inc. v. Commissioner, T.C. Memo. 1993-248. While

facially similar to the situation here, it differs in several

significant respects. The taxpayer was a farming corporation

wholly owned by Richard E. Hansen, who also served as president

of the corporation. Five months after incorporation, the taxpayer and Mr. Hansen jointly purchased land, with the taxpayer

buying a 30-year term interest for $211,165, and Mr. Hansen, the

taxpayer's shareholder, buying the remainder interest for

$12,835. Within 1 to 4 months before this purchase, the taxpayer

had transferred wheat valued at $28,416 to Mr. Hansen as wages. 

Mr. Hansen purchased his remainder interest by using a portion of

the proceeds from selling the wheat that he had received as

compensation. The corporation then began amortizing its cost of

acquiring the term interest in the land.
- 34 -

Richard Hansen Land, Inc. v. Commissioner, supra, like

Gordon v. Commissioner, 85 T.C. 309 (1985), and Kornfeld v.

Commissioner, T.C. Memo. 1996-472, involved the simultaneous

joint acquisition of term and remainder interests in property

acquired from a third party. However, we held in Richard Hansen

Land, Inc. v. Commissioner, supra, unlike the other two cases,

that the taxpayer did not use Mr. Hansen as a "mere stopping

place" for the funds used to make the acquisitions. Rather,

Mr. Hansen acquired his remainder interest entirely out of his

own earnings——by drawing on his personal bank account to make the

purchase. Although a portion of that amount constituted the

proceeds of selling the wheat he had received as wages, it was

more important that such wages were due and owing to Mr. Hansen

and separate, in our view, from the joint purchase that followed. 

The taxpayer had an obligation to pay Mr. Hansen for his work in

the taxpayer's farming and ranching business, a point which the

Commissioner had conceded, regardless of whether Mr. Hansen chose

to participate in a joint asset purchase. As we noted in our

opinion: "Mr. Hansen rendered services to * * * [the taxpayer],

and there is nothing in the record that would indicate that the

transfer of wheat by * * * [the taxpayer] to Mr. Hansen represented anything other than wages." Id. The acquisitions of the

term and remainder interests by, respectively, the corporation

and Mr. Hansen, its sole shareholder, "'were in fact what they

appear to be in form.'" Id. (quoting Hobby v. Commissioner, 2

T.C. 980, 985 (1943)).
- 35 -

15This formulation of the step transaction doctrine

describes the "end result" test, one of three alternative tests

used for determining when and how to apply this doctrine in a

given situation. For a summary of the step transaction doctrine

and its three approaches, see our discussion in Penrod v.

Commissioner, 88 T.C. 1415, 1428-1430 (1987). Both Kornfeld v.

Commissioner, 137 F.3d 1231, 1235 (10th Cir. 1998), affg. T.C.

Memo. 1996-472, and Gordon v. Commissioner, 85 T.C. 309, 324

(1985), respectively, apply this test to step together the series

of related transactions at issue in those cases.

With the foregoing in mind, we must decide whether petitioners and the Family Trusts separately and independently

invested in the limited partnerships or whether petitioners, in

substance, acquired partnership interests B in their entirety,

retaining term interests, and transferring the remainders to the

Family Trusts. On the basis of the record before us, we conclude

that petitioners acquired the full partnership interests outright, and that the rationale of Lomas Santa Fe, Inc. v. Commissioner, 693 F.2d 71 (9th Cir. 1982), and United States v. Georgia

R.R. & Banking Co., 348 F.2d 278 (5th Cir. 1965), applies to deny

petitioners their amortization deductions of term interests in

the CGF and Lincoln Partnerships.

As mentioned earlier in this opinion, Gordon v. Commissioner, supra at 326-327, and Kornfeld v. Commissioner, 137 F.3d

1231 (10th Cir. 1998), highlight the manner in which we are to

dispose of the instant cases; i.e., by examining closely the

transactions in question in order to ascertain whether they were

really prearranged steps of a single transaction, cast from the

outset to achieve an ultimate result.15 This examination is

intensely factual.
- 36 -

16Joint asset acquisitions give rise to tax planning techniques because value shifts from the present interest holder to

the future interest holder without the latter's being taxed when

the remainder interest vests in possession.

For purposes of this opinion, we take at face value the

parties' stipulated submission of Joint Exhibit No. 181-FY, in

which Mr. Page asserts that participating in the joint asset

acquisitions creates tax benefits for the remaindermen by

"extract[ing] cash from * * * [CGF and Lincoln] at an approximate

14% tax rate." Respondent asserts that this multitiered transaction was designed to create tax benefits for the term interest

holders, too. More specifically, respondent emphasizes that, by

participating in the joint asset acquisitions, petitioners sought

to match amortization deductions against their income on U.S.

Government securities, which they now owned indirectly through

limited partnerships.

Here, the evidence of record and the parties' stipulation of

the following facts show a plan for the joint purchase by related

parties of partnership interests for the sole purpose of

obtaining favorable tax benefits.16 While the legal right of a

taxpayer to decrease the amount of what otherwise would be his

taxes or altogether avoid them by means which the law permits

cannot be doubted, Gregory v. Helvering, 293 U.S. 465, 469

(1935), the Commissioner may disregard transactions which are

designed to manipulate the tax laws so as to create artificial

tax deductions, Northern Ind. Pub. Serv. Co. v. Commissioner, 115

F.3d 506, 512 (7th Cir. 1997) (citing Knetsch v. United States,

364 U.S. 361 (1960), as authority for that proposition), affg.

105 T.C. 341 (1995).

In 1986, Robert A. Page produced an 11-page letter, calling

it his "epistle", in which he described what he believed to be a

favorable device for extracting corporate assets without a
- 37 -

dividend or capital gains tax. One year later in 1987, Mr. Page

led an in-depth discussion regarding Lincoln's current and future

operations at Lincoln's annual board meeting.

In February 1988, during Lincoln's board meeting, Mr. Page

moved that Lincoln buy 10-year term interests for up to

$6 million. He also moved to have Lincoln redeem $5,440,000

worth of its preferred stock no later than March 31, 1988. An

addendum to Mr. Page's first letter followed in March 1988. Then

on March 28, 1988, Lincoln redeemed its preferred stock, and 3

days later, on March 31, 1988, Lincoln and the Lincoln Family

Trusts formed four of the nine Lincoln Partnerships.

In April 1988, Mr. Page prepared yet another letter fleshing

out the transactional details of his plan. Approximately 3

months later in July 1988, CGF made distributions to its

shareholders and formed five limited partnerships with the CGF

Family Trusts. Then in early October 1988, at one of Lincoln's

board meetings, Mr. Page moved that Lincoln purchase term

interests in up to five additional partnerships. He also moved

to have Lincoln declare another dividend. The dividend distribution took place on October 31 and approximately 1 month later on

December 9, 1988, Lincoln and the Lincoln Family Trusts created

five more partnerships.

This chronology of events shows a definite pattern. Each

time petitioners formed partnerships and acquired term interests

therein, distributions were paid so that their shareholders

could, likewise, invest in such partnerships and acquire the
- 38 -

17We note that the exact order may vary somewhat depending

upon whether reference is made to CGF or Lincoln.

remainder interests. This, of course, was no mere coincidence. 

Rather, it was one of a series of steps, the cumulative effect

being to generate amortization deductions.

Generally, this series of events occurred as follows.17

First, members of petitioners' boards of directors authorized the

purchase of term interests in partnerships. Second, petitioners

declared cash dividend distributions and/or stock redemptions

while, at the same time, liquidating a substantial portion of

their assets in U.S. Government securities, either directly or

through capital withdrawals in partnerships so investing. Then

petitioners formed limited partnerships by taking back term

interests therein, while the Family Trusts simultaneously took

back the remainders. Lastly, while petitioners began offsetting

their distributive shares of partnership income with amortization

and other deductions attributable to their term interests, the

Family Trusts waited in the wings for their remainder interests

to vest in possession without the incidence of taxation.

It is apparent that the transfers of funds to the Family

Trusts and their purchases shortly thereafter of remainder

interests in the limited partnerships constituted integrated

transactions intended to move assets from petitioners to the

Family Trusts with favorable tax consequences. Petitioners'

distributions to the Family Trusts, followed by the formation of

the CGF and Lincoln Partnerships, were not unconnected
- 39 -

transactions. Rather, they represented very important steps in

the series. Absent the initial step of distributing funds to the

Family Trusts, the remaining steps of forming the CGF and Lincoln

Partnerships, and of petitioners' acquiring the term interests

and the Family Trusts' acquiring the remainders, could not have

been successfully accomplished. Indeed, the creation of these

partnerships was necessary to achieve petitioners' intended end

result, which was to funnel large amounts of money outside of

petitioners' corporate structure and into the hands of their

shareholders while enjoying favorable tax treatment. The

intention to bring about this end result is manifested in

Robert A. Page's letters and in the minutes of petitioners' board

meetings. On the basis of the stipulated factual record, we

conclude that, in spite of the form in which the joint investment

transaction was cast, its substance shows petitioners acquiring

partnership interests B in their entirety and then carving out

remainder interests for the benefit of the Family Trusts.

It bears noting that, in his letter of May 15, 1986,

Mr. Page wrote of a potential pitfall which could thwart the

success of his plan; i.e., where the term interest holder funds

the remaindermen with the amounts necessary to obtain their

interests. In that situation, he warned, petitioners would be

viewed as acquiring the entire interest and then transferring the

remainders to their shareholders, in which case the otherwise

favorable tax results stemming from the amortization deductions

would disappear. Mr. Page's solution to this "limiting factor,"
- 40 -

18In Kornfeld v. Commissioner, 137 F.3d 1231 (10th Cir.

1998), gift tax returns were filed in respect of all the funds

provided by Mr. Kornfeld to his daughters and secretary, whereas

in Gordon v. Commissioner, 85 T.C. 309 (1985), most of the

transfers of funds by Dr. Gordon to the family trust (holder of

the remainder interests) were not reflected in any gift tax

returns.

as he called it, was to have the corporation distribute dividends

so that its shareholders would be regarded as independently

investing the after-tax proceeds in the CGF and Lincoln Partnerships.

The court in Kornfeld v. Commissioner, 137 F.3d 1231 (10th

Cir. 1998), addressed this very point. In that case, where the

remaindermen had no legal obligation to use the funds provided by

the taxpayer to acquire their interests,18 the court did not

regard Gordon v. Commissioner, 85 T.C. 309 (1985), as distinguishable. The court noted that Mr. Kornfeld's intention in

making the gifts was to enable the donees to purchase the

remainder interests. And as the Court of Appeals for the Tenth

Circuit pointed out: "there is no reason these remaindermen

would question making the investments when taxpayer was giving

them the funds to make their purchases." Kornfeld v. Commissioner, supra at 1236. Similarly, in Gordon v. Commissioner,

supra, the Court emphasized the parties' actual intent when it

addressed this argument in a footnote:

We reject petitioners' argument that the fact that

the trust was free to refuse to participate in any or

all of the joint purchase transactions indicates that

the trust's role as purchaser had substance. For

purposes of this question, the power to refuse is a

fact to consider * * * but is of minimal significance
- 41 -

where, as here, the facts reveal that the entire

transaction was set up around the expectation that the

joint implementation of Gordon's investment strategy

would occur. * * * [Id. at 331 n.16.]

Petitioners also attempt to focus our attention on the fact

that only a part of their distributions was used by the Family

Trusts to invest in the limited partnerships. Advancing what is

essentially the same argument as above, petitioners contend that

each trust exercised its separate discretion in deciding whether,

and to what extent, it would participate in Mr. Page's joint

investment scheme. Thus, they would have us treat their distributions separately from the actual joint purchases and would have

us regard the remainder acquisitions as the result of the Family

Trusts' independent investment decisions. While we recognize

that petitioners' distribution amounts did not accord absolutely

with the amounts subsequently invested by the Family Trusts in

the limited partnerships, there was substantial overlapping. In

the case of CGF, $7,977,586 was transferred to the CGF Family

Trusts within 2 months of the trusts' investing $5,928,810 in the

CGF Partnerships. In the case of Lincoln, $5,440,000 in stock

redemptions was distributed to the Lincoln Family Trusts in March

1988, the same month in which those trusts subsequently invested

$3,287,774 in the first four Lincoln Partnerships created. In

October 1988, Lincoln distributed $3,998,678 in dividends to

those Family Trusts, which subsequently invested $3,449,342 in

the last five Lincoln Partnerships formed in early December.
- 42 -

19If the after-tax proceeds of the distributions are

compared with the amounts used to purchase the remainder

interests, the numbers should align even more closely.

The close identity of funds moving from petitioners to the

Family Trusts and in turn to the CGF and Lincoln Partnerships,19

coupled with the close proximity in time in which this occurred,

suggests that the distribution amounts were intended all along to

be used in the joint investment transactions. We are hard

pressed to believe that the Family Trusts would have agreed to

engage in such transactions without having first received

petitioners' distributions shortly before acquiring their

remainder interests.

Likewise, in Gordon v. Commissioner, supra, there was not

complete identity in the amounts transferred to the trust and the

amount subsequently invested by the trust in the remainder

interest. For example, in one of the tax years at issue,

Dr. Gordon deposited at least $78,141 in the trust's savings

account, and the trust subsequently withdrew $47,592 to purchase

a remainder interest in tax-exempt bonds, while in the next year,

Dr. Gordon deposited at least $58,100 in its savings account, and

the trust withdrew $97,853 to buy its remainder interest. We

were satisfied, however, that "the trust appears to have been

funded for little purpose other than to participate with Dr. Gordon in the implementation of his bond acquisition strategy, a

fact that further indicates that Dr. Gordon should be treated as

the true purchaser of the whole bonds." Id. at 329.
- 43 -

Petitioners argue that Richard Hansen Land, Inc. v. Commissioner, T.C. Memo. 1993-248, supports their amortization of the

term interests. That case, however, is distinguishable. As

stated earlier, a few very pertinent facts set apart Richard

Hansen Land, Inc. v. Commissioner, supra, from the cases at bar. 

First, the corporation's payment of wages to Mr. Hansen was a

separate and distinct transaction, one whose bona fides were

never questioned by the Commissioner. Id. The payment of wages

represented an ordinary and recurring part of the farming

corporation's business. By way of contrast, CGF and Lincoln

undertook redemptions and declared dividends as part of a plan to

provide funds for the purchase of the remainder interests. 

Indeed, as Mr. Page described the plan: "The major portion of

the funds for the purchase of the remainder interest * * * is

provided from the after-tax proceeds of a[n] * * * extraordinary

dividend". Generally speaking, a dividend is defined as

extraordinary when it is unusual in amount and paid at an

irregular time because of a particular corporate event. Black's

Law Dictionary 587 (6th ed. 1990). Petitioners' distributions,

occurring within months of the limited partnerships' being

formed, were far from being recurring events in the cycle of

corporate operations; rather, they were extraordinary, nonrecurring distributions that were made for a specific purpose as part

of a prearranged plan.

The nature of the underlying transaction also serves to

distinguish Richard Hansen Land, Inc. v. Commissioner, supra,
- 44 -

from the present cases. The taxpayer and Mr. Hansen jointly

purchased a parcel of land which the corporation planted,

harvested, and attended to in a manner typical of other farm

corporations in the area. In the instant cases, petitioners and

the Family Trusts jointly formed limited partnerships with

petitioners owning, albeit indirectly, virtually the same assets

that petitioners had previously owned outright; i.e., Federal

Government bonds. More specifically, petitioners liquidated

their interests in U.S. Government securities, held directly or

through Net Venture, in order to fund the distributions made to

their shareholders. Subsequently, petitioners acquired term

interests in the limited partnerships which, in turn, reinvested

petitioners' funds in entities such as Net Venture and Gopher

Fund——investment partnerships owning U.S. Government obligations.

Unlike in Kornfeld v. Commissioner, 137 F.3d 1231 (10th Cir.

1998), Gordon v. Commissioner, 85 T.C. 309 (1985), and Richard

Hansen Land, Inc. v. Commissioner, supra, where consideration

moved to a third party, in the instant cases, funds remained

within the same family group. For example, in the case of

Lincoln, the amounts contributed by Lincoln and the Lincoln

Family Trusts to the Lincoln Partnerships, if viewed as an 

aggregate of all the members, can aptly be described as transfers

of money from that family's front pocket to its back pocket. 

This makes the case against petitioners even stronger; here,

related parties obtained tax benefits without making any outlays

of money to third parties. A mere shuffling around of income
- 45 -

20In Gordon v. Commissioner, 85 T.C. 309 (1985), no payment

of taxes was made because Dr. Gordon failed consistently to treat

as gifts the bulk of his cash transfers to the family trust. In

Kornfeld v. Commissioner, 137 F.3d 1231 (10th Cir. 1998), while

Mr. Kornfeld did file gift tax returns reflecting the gifts to

the remaindermen, he paid no tax on account of the unified

credit. Sec. 2505.

within the same family group would, petitioners had hoped, bring

about the favorable tax consequences which they had planned for 2

years earlier.

Unquestionably, what we have here is a tax scheme in the

form of joint partnership investments. Without disturbing the

character of their investment portfolio to any great extent,

petitioners acquired term interests in limited partnerships as

vehicles for creating tax deductions and for transferring income

to the Family Trusts at favorable tax rates. Petitioners'

amortization deductions of their term interests in the CGF and

Lincoln Partnerships were simply the last step in a series of

prearranged transactions designed from the outset to achieve

their intended result. In these circumstances, where the

evidence overwhelmingly supports this finding, we add that the

fact that the Family Trusts paid taxes on the distributions they

received from petitioners is not, in and of itself, sufficient to

distinguish the present cases from Gordon v. Commissioner, supra,

and Kornfeld v. Commissioner, supra.

20 The Court recognizes

that, in Richard Hansen Land, Inc. v. Commissioner, supra,

Mr. Hansen received wheat from his corporation and reported its

value as wages on his Federal income tax return. However, as
- 46 -

shown above, the wages were earned by and paid to him in the

ordinary course of the corporation's business. The factual

circumstances in Richard Hansen Land, Inc. v. Commissioner,

supra, are distinguishable from the cases at bar. Here, the

amounts distributed to the Family Trusts were calculated to take

into account the after-tax proceeds that would remain available

for their use in the joint asset purchases. Robert A. Page, as

engineer of the plan, left little to chance. What we have before

us is a purely tax-motivated scheme in the form of joint asset

acquisitions for the purpose of transferring assets from petitioners to the Family Trusts with minimal tax liability. As the

court in Saviano v. Commissioner, 765 F.2d 643, 654 (7th Cir.

1985), affg. 80 T.C. 955 (1983), recognized:

The freedom to arrange one's affairs to minimize taxes

does not include the right to engage in financial

fantasies with the expectation that the Internal

Revenue Service and the courts will play along. The

Commissioner and the courts are empowered, and in fact

duty-bound, to look beyond the contrived forms of

transactions to their economic substance and to apply

the tax laws accordingly. That is what we have done in

this case and that is what taxpayers should expect in

the future. 

We are satisfied that, on the basis of the record as a

whole, petitioners acquired entire interests in the CGF and

Lincoln Partnerships and then transferred the remainder interests

therein to the Family Trusts. Accordingly, using Kornfeld v.

Commissioner, supra, Lomas Santa Fe, Inc. v. Commissioner, 693

F.2d 71 (9th Cir. 1982), United States v. Georgia R.R. & Banking

Co., 348 F.2d 278 (5th Cir. 1965), and Gordon v. Commissioner,
- 47 -

21Given our holding herein, we offer no opinion on whether,

as respondent contends, amortizing term interests in partnerships

is inconsistent with the principles of subch. K. We also need

not decide whether petitioners' argument based on the clear

reflection of income principle, raised for the first time in

their opening brief, was made too late to be considered. See

Aero Rental v. Commissioner, 64 T.C. 331, 338 (1975); Greenberg

v. Commissioner, 25 T.C. 534, 537 (1955).

supra, we sustain respondent's disallowance of petitioners'

amortization deductions as determined in the notices of

deficiency.21

To reflect the foregoing and concessions by respondent,

Decisions will be entered

under Rule 155.
- 48 -

APPENDIX A

CGF One, L.P.

Type of Interest

Partnership Interest A

 Ruth G. Fink Trust Number One

Partnership Interest B--Term

 CGF Industries, Inc.

Partnership Interest B--Remainder

 H. Bernerd Fink Revocable Trust

 Ruth G. Fink Trust Number One

 Ruth G. Fink Trust Number Three

 Ruth G. Fink Trust Number Four

 Ruth G. Fink Trust Number Five

 Ruth G. Fink Partnership

 Ruth G. Fink Partnership Number Two

 Ruth G. Fink Charitable Trust Number One

Contribution

 $3,277

2,011,312

 12,620

 328,121

 12,620

 12,620

 12,620

 403,841

 201,921

 277,641

CGF Two, L.P.

Partnership Interest A

 Marcia F. Anderson Trust Number One

Partnership Interest B--Term

 CGF Industries, Inc.

Partnership Interest B--Remainder

 Marcia F. Anderson Revocable Trust

 Robert J. Anderson Revocable Trust

 Jane E. Anderson Revocable Trust

 Nancy J. Anderson Revocable Trust

 Robert J. Anderson, Custodian

 Marcia F. Anderson Trust Number One

 2,962

1,817,938

 330,794

 34,220

 193,914

 193,914

 193,914

 193,914

Santa Fe Partners, L.P.

Partnership Interest A

 Caroline A. Cochener Trust Number Five

Partnership Interest B--Term

 CGF Industries, Inc.

Partnership Interest B--Remainder

 Caroline A. Cochener Trust

 Caroline A. Cochener Trust Number Two

 Caroline A. Cochener Revocable Trust

 Bruce M. Bolene Revocable Trust

 3,690

2,265,250

 568,535

 284,268

 284,268

 284,268
- 49 -

Cloud Grey, L.P.

Type of Interest

Partnership Interest A

 Diana C. Broze Trust Number Five

Partnership Interest B--Term

 CGF Industries, Inc.

Partnership Interest B--Remainder

 Diana C. Broze Revocable Trust

 Vincent J. Broze Revocable Trust

 Joaquin Mason Trust Number One

 Joaquin Mason Trust Number Two

 Vincent J. Broze, Custodian

 Diana C. Broze Trust Number Three

 Diana C. Broze Trust Number Four

 Diana C. Broze Trust Number Five

 Diana C. Broze Trust Number Six

Contribution

 $3,690

2,265,250

 426,401

 28,427

 127,920

 56,854

 127,920

 28,427

 28,427

 28,427

 568,535

Alpha One, L.P.

Partnership Interest A

 Alpha, L.P., a Kansas Ltd. Partnership}

 Bruce G. Cochener Trust Number Three }

Partnership Interest B--Term

 CGF Industries, Inc.

Partnership Interest B--Remainder

 Alpha, L.P.

 3,690

2,265,250

1,421,338
- 50 -

APPENDIX B

Lincoln Partnership #1, L.P.

Type of Interest

Partnership Interest A

 Georgia L. Johnson Revocable Trust

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Georgia L. Johnson Trust Number Four

 Georgia L. Johnson Revocable Trust

Contribution

 $2,444

1,500,000

 2,441

 938,739

Lincoln Partnership #2, L.P.

Partnership Interest A

 Lincoln Family Trust Number Two

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Edward M. Lincoln Revocable Trust

 Edward M. Lincoln Trust Number Two

 Edward M. Lincoln Trust Number Three

 Edward M. Lincoln Trust Number Seven

 Lincoln Family Trust Number Two

 2,444

1,500,000

 117,647

 235,295

 235,295

 117,647

 235,295

Lincoln Partnership #3, L.P.

Partnership Interest A

 Margaret L. Donlan Trust Number Four

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Margaret L. Donlan Revocable Trust

 Margaret L. Donlan Trust Number Five

 2,444

1,500,000

 739,782

 201,397
- 51 -

HFC Partnership, L.P.

Type of Interest

Partnership Interest A

 Lincoln Family Trust Number Four

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Ann L. Hunter Trust Number Two

 Lincoln Family Trust Number Four

Contribution

 $24,657

1,500,000

 37,640

 903,369

Lincoln 88 Partnership, L.P.

Partnership Interest A

 Olivia G. Lincoln Revocable Trust

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Olivia G. Lincoln Revocable Trust

 Olivia G. Lincoln Trust Number One

 Olivia G. Lincoln Trust Number Two

 Olivia G. Lincoln Trust Number Three

 Olivia G. Lincoln Trust Number Four

 George A. Lincoln Trust Number One

 George A. Lincoln Trust Number Two

 George A. Lincoln Trust Number Three

 39,865

3,360,000

 170,127

 82,130

 82,130

 82,130

 82,130

 29,332

 29,332

 29,332

Lincoln Partnership #11, L.P.

Partnership Interest A

 Georgia L. Johnson Trust Number Four

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Georgia L. Johnson Revocable Trust

 Georgia L. Johnson Trust Number Two

 Lincoln Partnership #1, L.P.

 52,323

4,410,000

 269,490

 223,292

 277,190
- 52 -

Two Thousand Eight Partnership, L.P.

Type of Interest

Partnership Interest A

 Lincoln Family Trust Number Two

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Edward M. Lincoln Revocable Trust

 Edward M. Lincoln Trust Number Two

 Edward M. Lincoln Trust Number Three

 Edward M. Lincoln Trust Number Four

 Edward M. Lincoln Trust Number Five

 Edward M. Lincoln Trust Number Six

 Lincoln Family Trust Number Two

Contribution

 $52,323

4,410,000

 123,196

 19,249

 160,154

 46,198

 115,496

 200,193

 105,486

Donlan Partnership #1, L.P.

Partnership Interest A

 Margaret L. Donlan Trust Number Four

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Margaret L. Donlan Revocable Trust

 Margaret L. Donlan Trust Number Two

 Margaret L. Donlan Trust Number Three

 Margaret L. Donlan Trust Number Five

 52,323

4,410,000

 415,785

 121,271

 115,496

 117,421

HFC2 Partnership, L.P.

Partnership Interest A

 Lincoln Family Trust Number Four

Partnership Interest B--Term

 Lincoln Industries, Inc.

Partnership Interest B--Remainder

 Ann L. Hunter Revocable Trust

 Ann L. Hunter Trust Number Three

 Ann L. Hunter Trust Number Four

 Ann L. Hunter Trust Number Twenty-six

 52,323

4,410,000

 269,490

 307,989

 153,994

 38,499
- 53 -

APPENDIX C

Mar. 31, 1989

 Net Venture Gopher Fund Lake Union GAR Ninety

CGF One, L.P. $2,070,705 $1,130,652 -0- $160,533

 (61.59%) (33.63%) (4.78%)

CGF Two, L.P. 2,022,499 1,027,866 -0- -0-

 (66.30%) (33.7%)

Santa Fe Partners, 2,988,503 611,580 -0- 185,633

L.P. (78.91%) (16.15%) (4.90%)

Cloud Grey, L.P. 2,521,763 1,269,414 -0- -0-

 (66.52%) (33.48%)

Alpha One, L.P. 2,773,864 1,021,352 -0- -0-

 (73.09%) (26.91%)

Mar. 31, 1990

CGF One, L.P. 2,017,861 1,226,376 200,000 160,401

 (55.98%) (34.02%) (5.55%) (4.45%)

CGF Two, L.P. 2,000,075 1,070,434 200,000 -0-

 (61.15%) (32.73%) (6.12%)

Santa Fe Partners, 2,771,255 1,000,664 -0- 185,478

L.P. (68.99%) (24.91%) (4.62%)

Cloud Grey, L.P. 2,484,951 1,295,159 300,000 -0-

 (60.90%) (31.74%) (7.35%)

Alpha One, L.P. 1,966,100 497,001 600,000 605,404

 (49.54%) (12.52%) (15.12%) (15.25%)

Mar. 31, 1991

CGF One, L.P. 1,947,650 1,247,076 200,662 162,150

 (54.75%) (35.05%) (5.64%) (4.56%)

CGF Two, L.P. 1,942,005 1,103,451 200,663 -0-

 (59.83%) (33.99%) (6.18%)

Santa Fe Partners, 2,405,738 1,048,279 -0- 187,545

L.P. (60.33%) (26.29%) (4.70%)

Cloud Grey, L.P. 2,405,300 1,313,817 300,993 -0-

 (59.83%) (32.68%) (7.49%)

Alpha One, L.P. 1,144,804 131,784 601,986 612,529

 (31.44%) (3.62%) (16.53%) (16.82%)

Mar. 31, 1992

CGF One, L.P. 1,888,475 1,294,523 185,433 158,983

 (53.54%) (36.70%) (5.26%) (4.51%)

CGF Two, L.P. 1,894,917 1,138,216 185,435 -0-

 (58.87%) (35.36%) (5.76%)

Santa Fe Partners, 1,727,296 1,690,132 -0- 183,803

L.P. (43.65%) (42.71%) (4.65%)

Cloud Grey, L.P. 2,344,095 1,353,309 278,151 -0-

 (58.96%) (34.04%) (7.00%)

Alpha One, L.P. 605,378 6,400 556,301 339,630

 (18.65%) (.20%) (17.14%) (10.46%)
- 54 -

APPENDIX D

Mar. 31, 1989

Lincoln Partnership #1, L.P.

Lincoln Partnership #2, L.P.

Lincoln Partnership #3, L.P.

HFC Partnership, L.P.

Lincoln 88 Partnership, L.P.

Lincoln Partnership #11, L.P.

Two Thousand Eight Partnership, L.P.

Donlan Partnership #1, L.P.

HFC2 Partnership, L.P.

Net

Venture

$2,295,308

(89%)

 2,573,908

(100%)

 2,574,495

(100%)

 2,572,154

(100%)

 4,005,510

(100%)

 5,278,795

(100%)

 5,239,295

(100%)

 5,239,295

(100%)

 5,189,295

(100%)

Gopher

 Fund 

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

Gill

Industries,

 L.P. 

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

Falcon

 Fund 

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

Mar. 31, 1990

Lincoln Partnership #1, L.P.

Lincoln Partnership #2, L.P.

Lincoln Partnership #3, L.P.

HFC Partnership, L.P.

Lincoln 88 Partnership, L.P.

Lincoln Partnership #11, L.P.

Two Thousand Eight Partnership, L.P.

Donlan Partnership #1, L.P.

HFC2 Partnership, L.P.

 2,344,260

(89%)

 2,608,416

(100%)

 2,519,273

(97%)

 1,315,254

(52%)

 4,306,465

(100%)

 5,662,646

(100%)

 5,661,210

(100%)

 5,640,410

(100%)

 2,843,922

(54%)

-0-

-0-

-0-

$300,830

(12%)

-0-

-0-

-0-

-0-

601,660

(11%)

-0-

-0-

-0-

 $768,644

(31%)

-0-

-0-

-0-

-0-

1,537,288

(29%)

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-

-0-
- 55 -

Mar. 31, 1991

Lincoln Partnership #1, L.P.

Lincoln Partnership #2, L.P.

Lincoln Partnership #3, L.P.

HFC Partnership, L.P.

Lincoln 88 Partnership, L.P.

Lincoln Partnership #11, L.P.

Two Thousand Eight Partnership, L.P.

Donlan Partnership #1, L.P.

HFC2 Partnership, L.P.

Net

Venture

$2,335,433

(89%)

 160,650

(6%)

 2,500,084

(100%)

 1,073,125

(44%)

 3,932,136

(91%)

 5,663,261

(100%)

 145,496

(3%)

 5,304,234

(95%)

 2,204,380

(42%)

Gopher

 Fund 

-0-

-0-

-0-

 $547,863

(22%)

-0-

-0-

-0-

-0-

1,095,727

(21%)

Gill

Industries,

 L.P. 

-0-

-0-

-0-

 $695,483

(28%)

-0-

-0-

-0-

-0-

1,390,967

(26%)

Falcon

 Fund 

-0-

$2,251,000

(86%)

-0-

-0-

-0-

-0-

5,465,000

(97%)

-0-

-0-

Mar. 31, 1992

Lincoln Partnership #1, L.P.

Lincoln Partnership #2, L.P.

Lincoln Partnership #3, L.P.

HFC Partnership, L.P.

Lincoln 88 Partnership, L.P.

Lincoln Partnership #11, L.P.

Two Thousand Eight Partnership, L.P.

Donlan Partnership #1, L.P.

HFC2 Partnership, L.P.

 1,301,765

(51%)

 1,640,030

(63%)

 1,305,818

(52%)

 1,034,352

(42%)

 3,837,320

(89%)

 5,615,134

(100%)

 1,859,255

(33%)

 2,617,115

(47%)

 1,659,426

(32%)

 693,050

(27%)

-0-

1,191,836

(48%)

 566,257

(23%)

-0-

-0-

-0-

2,572,652

(46%)

1,133,910

(22%)

-0-

-0-

-0-

 665,673

(27%)

-0-

-0-

-0-

-0-

1,331,345

(25%)

 301,518

(12%)

 762,301

(29%)

-0-

-0-

-0-

-0-

3,766,238

(67%)

-0-

-0-
- 56 -

Mar, 31, 1993

Lincoln Partnership #1, L.P.

Lincoln Partnership #2, L.P.

Lincoln Partnership #3, L.P.

HFC Partnership, L.P.

Lincoln 88 Partnership, L.P.

Lincoln Partnership #11, L.P.

Two Thousand Eight Partnership, L.P.

Donlan Partnership #1, L.P.

HFC2 Partnership, L.P.

Net

Venture

 $918,338

(36%)

 1,582,013

(61%)

 1,227,878

(50%)

 1,071,313

(42%)

 3,398,414

(88%)

 5,608,393

(100%)

 3,629,269

(65%)

 2,457,021

(45%)

 1,694,779

(32%)

Gopher

 Fund 

 $689,373

(27%)

-0-

1,218,243

(50%)

 586,284

(23%)

-0-

-0-

-0-

2,619,070

(48%)

1,163,864

(22%)

Gill

Industries,

 L.P. 

-0-

-0-

-0-

 $711,263

(28%)

-0-

-0-

-0-

-0-

1,422,525

(27%)

Falcon

 Fund 

 $646,302

(26%)

 798,356

(31%)

-0-

-0-

-0-

-0-

1,940,994

(35%)

-0-

-0-