T.C. Memo. 2005-252

UNITED STATES TAX COURT

JACOB R. RAMSBURG, JR. AND NORMA J. RAMSBURG, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6140-03. Filed October 31, 2005.

David Samuel De Jong and Frank W. Dunham III, for 

petitioners.

Roger W. Bracken and Ann Welhaf, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Respondent determined deficiencies of

$69,505, $18,717, and $120,737 in petitioners’ Federal income tax

(tax) for 1996, 1997, and 1998, respectively. 
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1Petitioners and respondent agree that the Court’s resolution of the issue remaining for decision will resolve whether

petitioners are entitled to a net operating loss (NOL) deduction

for each of the years 1996 and 1997 that is attributable to an

alleged NOL carryback from 1998. There also are other questions

relating to certain determinations in the notice of deficiency

(notice) that are computational in that their resolution flows

automatically from our resolution of the issue that we address

herein. 

2All section references are to the Internal Revenue Code in

effect for the years at issue. All Rule references are to the

Tax Court Rules of Practice and Procedure.

3As discussed below, petitioners had both ordinary passive

losses and sec. 1231 passive losses. For convenience, we shall

sometimes refer collectively to petitioners’ ordinary passive

losses and sec. 1231 passive losses as petitioners’ passive

losses. 

The only issue remaining for decision1 is whether section

469(g)(1)2 permits petitioners to treat for 1998 certain losses

from a passive activity (passive losses) as losses not from a

passive activity (nonpassive losses).3 We hold that it does not.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

At the time petitioners filed the petition in this case,

they resided in Thurmont, Maryland. 

Petitioner Jacob R. Ramsburg, Jr. (Mr. Ramsburg) and Carroll

K. Stottlemeyer (Mr. Stottlemeyer) have been friends since they

were children. In 1972, Mr. Ramsburg hired Mr. Stottlemeyer to

work for Frederick Underwriters, Inc. (Frederick Underwriters), a

corporation 94 percent to 96 percent of whose stock Mr. Ramsburg

owned at all relevant times. In 2004, Mr. Stottlemeyer retired. 
- 3 -

In 1980, Mr. Ramsburg suggested to Mr. Stottlemeyer that

they form a partnership that would engage in the horse business. 

Mr. Ramsburg made that suggestion in order to, inter alia, help

Mr. Stottlemeyer who was having family problems. On September

15, 1980, Mr. Ramsburg and Mr. Stottlemeyer formed a general

partnership known as Kildare Timmy (Kildare Timmy). The partnership agreement that they signed with respect to Kildare Timmy

(Kildare Timmy partnership agreement) provided:

PARTNERSHIP AGREEMENT

This Partnership Agreement is dated September 15, 1980,

between Carroll K. Stottlemeyer (Scotty) and J. R.

Ramsburg Jr. (JR) hereafter known as partners.

Scotty is actively involved in the business of training

and racing standard bred horses. JR wants to invest

some money and become involved in this business. 

Accordingly, Scotty and JR have agreed to the following

terms of their partnership:

The partnership name will be called KILDARE TIMMY.

Scotty and JR will each own 50% of the assets, liabilities and capital interest of the partnership.

Scotty and JR will each receive 50% of the profits of

the partnership.

Losses incurred by the partnership will be allocated to

the partners based upon cash contributed to the partnership. The partner that contributes the cash to the

partnership or guarantees partnership debt so that the

partnership can incur the losses will receive the

benefit of the losses. 

Scotty will keep the checkbook and will handle the dayto-day management of the partnership. 

The partnership address will be 1201 East Street,

Frederick, Maryland. 
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When Kildare Timmy was formed, its business activities,

except for some minor horse breeding activities, were limited to

racing horses. At all relevant times, Kildare Timmy hired

trainers, including Dane Snyder and Dave Dempster (Kildare

Timmy’s trainers), to maintain, care for, and train its racehorses at stables located in Washington, Pennsylvania. 

In 1986, Kildare Timmy became more involved in horse breeding activities. At all relevant times, Kildare Timmy’s

broodmares were maintained and cared for by Mr. Ramsburg at

stables located on his farm in Thurmont, Maryland. 

At all relevant times until at least 1995, Mr. Stottlemeyer

generally performed day-to-day management services for Kildare

Timmy (Mr. Stottlemeyer’s management services). Those services

included attending horse sales, selecting horses to buy, and

dealing with Kildare Timmy’s trainers. In return for Mr.

Stottlemeyer’s management services, Mr. Stottlemeyer did not

receive any salary from Kildare Timmy or increases in his Kildare

Timmy capital account. 

During at least 1987 through 1996, Mr. Stottlemeyer made

cash capital contributions to Kildare Timmy totaling nearly

$300,000 (i.e., approximately $282,187). He made most of those

contributions from the salary that he received as an employee of
- 5 -

4In order to make cash capital contributions to Kildare

Timmy, Mr. Stottlemeyer directed Frederick Underwriters to

transfer on his behalf certain amounts of his salary to Kildare

Timmy. 

Frederick Underwriters.4 From at least 1986 through 1997, Mr.

Ramsburg made cash capital contributions to Kildare Timmy totaling approximately $1,336,459. The total amount of Mr. Ramsburg’s

cash capital contributions included $283,500 that, as found

below, he borrowed from Frederick Underwriters and contributed to

Kildare Timmy. On January 1, 1998, the date on which Kildare

Timmy distributed all of its assets to Mr. Ramsburg (discussed

below), Mr. Stottlemeyer did not own a 50-percent capital interest in Kildare Timmy. 

On November 1, 1992, Frederick Underwriters made two loans

in the amounts of $140,000 and $143,500, respectively, to Mr.

Ramsburg in his individual capacity and not in his capacity as a

general partner of Kildare Timmy (collectively, Frederick Underwriters’ 1992 loans to Mr. Ramsburg). On that date, Mr. Ramsburg

signed in his individual capacity and not in his capacity as a

general partner of Kildare Timmy two promissory notes payable to

Frederick Underwriters in the amounts of $140,000 and $143,500,

respectively, that evidenced such respective loans. (We shall

refer collectively to that $140,000 promissory note and that

$143,500 promissory note as Mr. Ramsburg’s 1992 notes.) Each of

Mr. Ramsburg’s 1992 notes provided for interest at the annual
- 6 -

5The parties stipulated that the “treatment of the Frederick

[Underwriters’ 1992] loans [to Mr. Ramsburg] on the partnership’s

balance sheet was unchanged until the partnership terminated in

1998" and that “At the end of 1997, the Frederick [Underwriters’

1992] loans [to Mr. Ramsburg] remained unpaid.” Those stipulations are contrary to certain checklists (discussed below) used

by Keller Bruner and Company (Keller Bruner), the certified

public accounting firm employed by Kildare Timmy and petitioners

in preparing the tax returns for Kildare Timmy and petitioners. 

(We shall hereinafter refer to the checklists used by Keller

Bruner as the Keller Bruner checklists.) As found below, Mr.

Ramsburg’s 1992 notes and Frederick Underwriters’ 1992 loans to

Mr. Ramsburg were not outstanding, according to the Keller Bruner

checklists, at the end of 1997 or on the next day (i.e., Jan. 1,

1998) on which Kildare Timmy distributed all of its assets to Mr.

Ramsburg. According to the Keller Bruner checklists, in 1995

Frederick Underwriters’ 1992 loans to Mr. Ramsburg were paid in

full and refinanced by two new loans that Frederick Underwriters

made to Mr. Ramsburg in the amounts of $140,000 and $143,500,

respectively, and that were evidenced by two promissory notes,

each providing for interest at the annual rate of 5.79 percent

and a maturity date of Oct. 30, 1998. (We shall hereinafter

refer to those 1995 loans and those 1995 promissory notes as

Frederick Underwriters’ 1995 loans to Mr. Ramsburg and Mr.

Ramsburg’s 1995 notes, respectively.) In their stipulations of

fact, petitioners and respondent disregard the information shown

in the Keller Bruner checklists and treat Frederick Underwriters’

1992 loans to Mr. Ramsburg and Mr. Ramsburg’s 1992 notes as

outstanding at the end of 1997 and on the next day (i.e., Jan. 1,

1998) on which Kildare Timmy distributed all of its assets to Mr.

Ramsburg. We presume that they do so because they believe that

the material facts (e.g., the loan principal amount, the identity

of the debtor, the identity of the creditor) surrounding both

Frederick Underwriters’ 1992 loans to Mr. Ramsburg and Frederick

Underwriters’ 1995 loans to Mr. Ramsburg are the same. Moreover,

petitioners do not contend, and in any event petitioners have

(continued...)

rate of 3.61 percent to be paid annually commencing on December

31, 1992, and for the entire principal balance and any accrued

and unpaid interest to be paid on October 30, 1995. Mr. Ramsburg

transferred the proceeds of Frederick Underwriters’ 1992 loans to

Mr. Ramsburg to Kildare Timmy as capital contributions.5 
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5(...continued)

failed to carry their burden of showing, that Frederick Underwriters did not make the Frederick Underwriters’ 1995 loans to

Mr. Ramsburg in his individual capacity, that Mr. Ramsburg did

not sign Mr. Ramsburg’s 1995 notes in his individual capacity,

and that he did not transfer the proceeds of Frederick Underwriters’ 1995 loans to Mr. Ramsburg to Kildare Timmy as capital

contributions. In any event, whether (1) Frederick Underwriters’

1992 loans to Mr. Ramsburg and Mr. Ramsburg’s 1992 notes or 

(2) Frederick Underwriters’ 1995 loans to Mr. Ramsburg and Mr.

Ramsburg’s 1995 notes were outstanding at the end of 1997 and on

the next day (i.e., Jan. 1, 1998) on which Kildare Timmy distributed all of its assets to Mr. Ramsburg does not affect our

findings and conclusions herein. For convenience, we shall

hereinafter refer only to Frederick Underwriters’ 1992 loans to

Mr. Ramsburg and Mr. Ramsburg’s 1992 notes.

6By using the term “Mr. Stottlemeyer’s note”, we do not

intend to suggest that for tax purposes there was a loan by Mr.

Ramsburg to Mr. Stottlemeyer.

Kildare Timmy did not execute a note with respect to either

of the Frederick Underwriters’ 1992 loans to Mr. Ramsburg. 

Kildare Timmy did not make any payments of principal to Mr.

Ramsburg or Frederick Underwriters with respect to either of such

loans. 

On December 31, 1994, Mr. Stottlemeyer executed a document

entitled “NOTE” (Mr. Stottlemeyer’s note)6 that provided in

pertinent part:

I Carroll K. Stottlemeyer, after date, FOR VALUE

RECEIVED, the Undersigned, jointly and severally,

promise to pay to the order of Jacob R. Ramsburg Jr.,

the lesser of my share of cash proceeds from disposition of horses owned by the entity known as Kildare

Timmy or the sum of one hundred fourty six thousand

seven hundred and fifty Dollars payable at the offices

of Frederick Underwriters, with interest from date at

the rate of 0% per annum. [Reproduced literally.]
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7At a time not disclosed by the record during petitioners’

taxable year 1998, the name of Mr. Ramsburg’s sole proprietorship

was changed from Troy McDougal to J R Ramsburg Stables. 

Mr. Stottlemeyer’s note did not specify any date(s) on which Mr.

Stottlemeyer was to make any payment(s) thereunder.

At a time not disclosed by the record before petitioners’

taxable year 1996, Mr. Ramsburg began operating as a sole proprietorship a horse-racing business under the name Troy McDougal

(Mr. Ramsburg’s sole proprietorship).7 Mr. Ramsburg’s sole

proprietorship raced two- and three-year old horses. Mr.

Ramsburg’s sole proprietorship sold the three-year old horses

that he raced after the racing season ended. At all relevant

times, Mr. Ramsburg’s sole proprietorship retained Dan Altmeyer

(Mr. Altmeyer) to serve as the trainer for its horses. In return

for his services, Mr. Ramsburg’s sole proprietorship gave Mr.

Altmeyer a one-third interest in any horses that it purchased

(Mr. Ramsburg’s sole proprietorship’s horses). At all relevant

times, Mr. Altmeyer trained Mr. Ramsburg’s sole proprietorship’s

horses for half a year in Florida and for half a year in Pennsylvania. 

Beginning in 1995, Mr. Stottlemeyer became ill and was

diagnosed with a brain tumor. In the spring of 1995, Mr.

Stottlemeyer underwent surgery, which was followed by a long

recovery period. During the period Mr. Stottlemeyer was recovering, Mr. Ramsburg assumed Mr. Stottlemeyer’s day-to-day manage-
- 9 -

ment role for Kildare Timmy. 

At a time in 1996 or 1997 not disclosed by the record, but

before December 8, 1997, Mr. Stottlemeyer concluded, and informed

Mr. Ramsburg, that Mr. Stottlemeyer should withdraw from Kildare

Timmy because he no longer was able to perform Mr. Stottlemeyer’s

management services for that partnership. Thereafter, Mr.

Stottlemeyer and Mr. Ramsburg decided to terminate Kildare Timmy. 

On December 8, 1997, Mr. Ramsburg gave Mr. Stottlemeyer a

letter outlining the terms of the termination of Kildare Timmy

(Kildare Timmy termination agreement), which Mr. Stottlemeyer

signed on that date. The Kildare Timmy termination agreement

provided in pertinent part:

In view of all that is going on in your life, I can

understand your not wanting to continue in the horse

business, and understand that you are unable to make a

capital contribution this year. I know that you have

not been able to make a 50-50 capital contribution

since 1991, but felt that your contribution to the

daily operations was sweat equity. I believe now is

the time to consider changing our partnership arrangement from 50-50. I would like to make the following

offer to you:

1) The partnership will purchase no more horses.

2) We will wind up the business of the partnership by the end of this year, and I will

assume all responsibility for the checking

account at Frederick County National Bank.

3) On January 1, 1998, I will purchase all of

the horses and equipment owned by us jointly

at book value and have them transferred during 1998 to my name individually.

4) I will assume all of the liabilities owed by

us as a result of the horse racing and breeding done by the Kildare Timmy partnership. 
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8The names of the racing and breeding horses that Kildare

Timmy distributed to Mr. Ramsburg were: Idealists Hanover,

Happening Hanover, Rare Guy, Brief Wars, Justen’s Western, Bar B

Wars, Overture Hanover, Overture Siera, Vidalita Hanover, Western

Skylark, Yankee Skylark, Northern Crush, Tarport Reactor, Yankee

Bardot, Western Shuffle, Pizzacato, Yankee Shuffle, Yankee

Goddess, and Rock Legend. 

On January 1, 1998, Kildare Timmy distributed all of its

assets to Mr. Ramsburg, including 7 race horses and 12 breeding

horses (sometimes referred to collectively as racing and breeding

horses),8 the balance (i.e., $908.71) in Kildare Timmy’s bank

account (Kildare Timmy bank account balance), and certain stud

rights known as Cams Card Skark stallion interest (stud rights). 

Neither Kildare Timmy nor its partners obtained an appraisal of

the racing and breeding horses and the stud rights that Kildare

Timmy distributed to Mr. Ramsburg upon termination of that

partnership. 

On or about the date on which Kildare Timmy distributed all

of its assets to Mr. Ramsburg, Mr. Ramsburg repaid with his

personal funds the Frederick Underwriters’ 1992 loans to Mr.

Ramsburg. 

After the termination of Kildare Timmy, Mr. Ramsburg continued operating Mr. Ramsburg’s sole proprietorship. For at least

part of 1998, Mr. Ramsburg used in Mr. Ramsburg’s sole proprietorship all 19 of the racing and breeding horses that Kildare

Timmy had distributed to him. In 1998, Mr. Ramsburg sold 9 of

those racing and breeding horses, and Mr. Ramsburg’s sole propri-
- 11 -

9See infra note 16.

etorship continued using the remaining 10 such horses in its

business. As discussed below, petitioners reported in their 1998

tax return the following gain or loss on the sale of those nine

horses: 

Horses Gain or (Loss)

Idealists Hanover ($1,839)

Brief Wars 2,129

Western Skylark 129

Rare Guy (3,779)

Overture Siera (3,319)

Happening Hanover (2,883)

Yankee Skylark 1,199

Overture Hanover (911)

Vidalita Hanover (2,267)

In 1999, Mr. Ramsburg sold three additional racing and

breeding horses that Kildare Timmy had distributed to him, and

Mr. Ramsburg’s sole proprietorship continued using the remaining

seven such horses in its business. As discussed below, petitioners reported in their 1999 tax return the following gain or loss

on the sale of those three horses:9

Horses Gain or (Loss)

Bar B Wars ($2,067)

Justen’s Western 58,933

Western Shuffle 30,301

In 2002, Mr. Ramsburg sold three additional racing and

breeding horses that Kildare Timmy had distributed to him. As

discussed below, petitioners reported in their 2002 tax return
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the following gain or loss on the sale of those three horses: 

Horses Gain or (Loss)

Northern Crush ($2,578)

Tarport Reactor (885)

Yankee Bardot $1,055

For each of the taxable years 1986 through 1998, Kildare

Timmy, which used a taxable year ending December 31, timely filed

Form 1065, U.S. Partnership Return of Income (partnership return), which Mr. Ramsburg signed as a general partner. Kildare

Timmy employed Keller Bruner to prepare those returns. In

preparing those returns, Dawson Grove and Brian Rippeon (Mr.

Rippeon), who worked for Keller Bruner, relied on information and

representations that Mr. Ramsburg and/or Mr. Stottlemeyer provided to them. 

The respective partnership returns that Kildare Timmy filed

for the years 1986 through 1998, including certain schedules

included as part of those returns, showed, inter alia, the

following with respect to Kildare Timmy and with respect to Mr.

Ramsburg and Mr. Stottlemeyer:
- 13 -

Year

Ordinary

income

(loss)

from trade

or

business 

activities

Capital account at

 beginning of year 

Capital contributed

 during year 

Distributive share

of ordinary income

(loss) from trade or

 business activities

Net gain (loss)

under section 1231

Withdrawals and

 distributions 

Capital account

 at end of year 

Kildare

 Timmy R1 S2 R S R S R S R S R S 

1986 ($16,387) $1,193 $1,193 $21,102 $0 ($16,387) $0 $0 $0 $0 $0 $5,908 $1,193

1987 (42,504) 5,908 1,193 55,100 25,000 (29,735) (12,769) (2,478) (1,061) 0 0 28,795 12,363

1988 (85,199) 28,795 12,363 25,560 25,160 (42,600) (42,600) 0 0 0 0 11,755 (5,077)

1989 (3,448) 11,755 (5,077) 15,370 15,250 (1,724) (1,724) 0 0 5,500 5,500 24,071 7,119

1990 (74,929) 24,071 7,119 24,000 24,000 (37,464) (37,465) (4,285) (4,285) 0 0 12,172 (4,781)

1991 (194,535) 12,172 (4,781) 33,562 33,562 (97,268) (97,267) (4,992) (4,991) 0 0 (56,525) (73,478)

1992 (203,170) (56,526) (73,478) 195,793 34,292 (172,898) (30,272) (18,423) (3,226) 0 0 (52,054) (72,684)

1993 (202,647) (52,054) (72,684) 171,898 30,297 (172,250) (30,397) (5,465) (964) 0 0 (57,871) (73,748)

1994 (172,298) (57,871) (73,748) 157,798 30,297 (144,541) (27,757) (2,920) (561) 0 0 (47,534) (71,769)

1995 (215,002) (47,534) (71,769) 184,332 30,832 (184,192) (30,810) 5,313 

 

 889 0 0 (42,081) (70,858)

1996 (130,806) (42,081) (70,858) 104,497 33,497 (99,059) (31,747) (2,071) (664) 0 0 (38,714) (69,772)

1997 (153,819) (38,714) (69,772) 63,947 0 (153,819) 0 (14,983) 0 0 0 (143,569) (69,772)

1998 (4,592) (143,569) (69,772) 283,500 0 (4,592) 0 0 0 65,567 0 0 0

1R refers to Mr. Ramsburg.

2S refers to Mr. Stottlemeyer.
- 14 -

10The loss of $4,592 is the amount shown in the chart above

as Mr. Ramsburg’s distributive share of ordinary loss from trade

or business activities.

Included as part of the 1998 partnership return for Kildare

Timmy’s short and final taxable year was Schedule K-1, Partner’s

Share of Income, Credits, Deductions, Etc. (Schedule K-1),

relating to Mr. Ramsburg. A statement (explanatory statement

relating to Mr. Ramsburg’s Schedule K-1) entitled “Schedule K-1,

Column C Reconciliation” purported to explain how the amount

shown for 1998 (i.e., a loss of $4,592)10 in Item J, Column (c)

of such Schedule K-1 (i.e., Partner’s share of lines 3, 4, and 7,

Form 1065, Schedule M-2) was calculated. The explanatory statement relating to Mr. Ramsburg’s 1998 Schedule K-1 showed the

following:

Description Amount

Ordinary Income (Loss) ($4,592)

Loss on Disposition1 (69,772)

Total to Schedule K-1,

Item J, Column C

(74,364)

1The explanatory statement relating to Mr. Ramsburg’s Schedule K-1 did not provide any details about “Loss on Disposition”. 

Included as part of the 1998 partnership return was Schedule

K-1 relating to Mr. Stottlemeyer. A statement (explanatory

statement relating to Mr. Stottlemeyer’s Schedule K-1) entitled

“Schedule K-1, Column C Reconciliation” purported to explain how

the amount shown for 1998 (i.e., $0) in Item J, Column (c) of

such Schedule K-1 (i.e., Partner’s share of lines 3, 4, and 7,
- 15 -

11The amount of $0 is the amount shown in the chart above as

Mr. Stottlemeyer’s distributive share of ordinary income or loss

from trade or business activities.

Form 1065, Schedule M-2)11 was calculated. The explanatory

statement relating to Mr. Stottlemeyer’s 1998 Schedule K-1 showed

the following:

Description Amount

Gain on Disposition1 $69,772

Total to Schedule K-1,

Item J, Column C

 69,772

1The explanatory statement relating to Mr. Stottlemeyer’s

Schedule K-1 did not provide any details about “Gain on Disposition”. 

The 1998 partnership return included Form 4797, Sales of

Business Property (Form 4797). In Part III of that form, Gain

From Disposition of Property Under Sections 1245, 1250, 1252,

1254, and 1255, Kildare Timmy claimed the following with respect

to the racing and breeding horses that it distributed to Mr.

Ramsburg:
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Horse

Date

acquired Date sold

Gross

sales

price

Cost or

other basis

plus

expense

 of sale 

Depreciation

allowed

or allowable

Adjusted

 basis 

Total

 gain

Yankee

Goddess

10/02/88 01/01/98 $0 $16,000 $16,000 $0 $0

Rock Legend 10/17/88 01/01/98 0 10,000 10,000 0 0

Yankee

Shuffle

10/01/89 01/01/98 0 5,000 5,000 0 0

Yankee

Skylark

09/30/90 01/01/98 0 15,000 15,000 0 0

Yankee Bardot 09/15/91 01/01/98 398 13,000 12,602 398 0

Tarport

Reactor

11/24/92 01/01/98 3,411 16,000 12,589 3,411 0

Idealists

Hanover

11/15/94 01/01/98 4,339 9,500 5,161 4,339 0

Pizzacato 01/16/95 01/01/98 3,405 7,000 3,595 3,405 0

Brief Wars 03/13/95 01/01/98 2,121 4,360 2,239 2,121 0

Western

Skylark

04/24/95 01/01/98 2,202 4,240 2,038 2,202 0

Northern

Crush

10/29/95 01/01/98 7,017 12,000 4,983 7,017 0

Rare Guy 10/02/95 01/01/98 5,029 8,600 3,571 5,029 0

Overture

Hanover

02/01/95 01/01/98 911 1,875 964 911 0

Bar B Wars 04/08/96 01/01/98 7,090 10,570 3,480 7,090 0

Western

Shuffle

04/08/96 01/01/98 2,705 4,320 1,615 2,705 0

Justen’s

Western

05/13/96 01/01/98 2,655 4,240 1,585 2,655 0

Overture

Siera

09/25/96 01/01/98 3,319 5,300 1,981 3,319 0

Happening

Hanover

11/26/96 01/01/98 3,883 6,200 2,317 3,883 0

Vidalita

Hanover

11/26/96 01/01/98 3,883 6,200 2,317 3,883 0

In Part III of Form 4797 included in the 1998 partnership return,

Kildare Timmy also claimed the following with respect to the sale

of the stud rights that Kildare Timmy distributed to Mr.

Ramsburg:

Date

acquired Date sold

Gross

sales

price

Cost or other

basis plus

 expense of sale

Depreciation

allowed

or allowable

Adjusted

 basis 

Total

 gain 

01/13/95 01/01/98 $12,160 $25,000 $12,840 $12,160 $0

In preparing each of the respective partnership returns for
- 17 -

12For each of the years 1990 through 1993, the Keller Bruner

checklist was called “Partnership Return Of Income Checklist”. 

For each of the years 1994 through 1998, the Keller Bruner

checklist was called “Partnership (or LLC) Return Of Income

Checklist”. 

13See supra note 5.

the years 1990 through 1998, Keller Bruner used the Keller Bruner

checklist.12 The Keller Bruner checklist showed for each of the

years 1992 through 1997, inter alia, the following with respect

to various claimed notes payable to Frederick Underwriters by

Kildare Timmy:13

Year Notes payable Amount

1992 Keller

Bruner checklist

N/P Frederick Underwriters Dated 11-1-92 @ 3.61% 

Due 10-30-95 from JR only1

$140,000

N/P Frederick Underwriters Dated 11-1-92 @ 3.61% 

Due 10-30-95 from JR only1

 143,500

1993 Keller

Bruner checklist

N/P Frederick Underwriters Dated 11-1-92 @ 3.61%

Due 10-30-95 from JR only

 140,000

N/P Frederick Underwriters Dated 11-1-92 @ 3.61% 

Due 10-30-95 from JR only

 143,500

1994 Keller

Bruner checklist

N/P Frederick Underwriters Dated 11-1-92 @ 3.61% 

Due 10-30-95 from JR only

 140,000

N/P Frederick Underwriters Dated 11-1-92 @ 3.61% 

Due 10-30-95 from JR only

 143,500

1995 Keller

Bruner checklist

N/P Frederick Underwriters Dated 11-1-95 @ 5.79% 

Due 10-30-98 from JR only

140,000

N/P Frederick Underwriters Dated 11-1-95 @ 5.79% 

Due 10-30-98 from JR only

 143,500

1996 Keller

Bruner checklist

N/P Frederick Underwriters Dated 11-1-95 @ 5.79% 

Due 10-30-98 from JR only

 140,000

N/P Frederick Underwriters Dated 11-1-95 @ 5.79% 

Due 10-30-98 from JR only

 143,500

1997 Keller

Bruner checklist

N/P Frederick Underwriters Dated 11-1-95 @ 5.79% 

Due 10-30-98 from JR only

 140,000

N/P Frederick Underwriters Dated 11-1-95 @ 5.79% 

Due 10-30-98 from JR only

 143,500

1It is not altogether clear what was intended by the use of the phrase

“from JR only” that appeared in the Keller Bruner checklist for each of the

years 1992 through 1997. In any event, we have found that Mr. Ramsburg, in

his individual capacity and not in his capacity as a general partner of

Kildare Timmy, borrowed the money in question and then contributed such money

to Kildare Timmy as a capital contribution. 
- 18 -

14Keller Bruner prepared petitioners’ 1998 return. 

Petitioners jointly filed Form 1040, U.S. Individual Income

Tax Return (Form 1040), for their taxable year 1998 (1998 return).14 Petitioners’ 1998 return showed, inter alia, taxable

income of $0 and total tax of $0. In calculating the taxable

income of $0 reported in petitioners’ 1998 return, petitioners

claimed, inter alia, a loss of $809,668 in Schedule E, Supplemental Income and Loss (Schedule E), included as part of that

return. Such claimed loss included a nonpassive loss of

$784,668, which was shown in Schedule E as resulting from the

“ENTIRE DISPOSITION OF [A] PASSIVE ACTIVITY” conducted by Kildare

Timmy. 

Petitioners’ 1998 return included Form 4797, Sales of

Business Property (petitioners’ 1998 Form 4797). In Part I of

that form (Form 4797, Part I), Sales or Exchanges of Property

Used in a Trade or Business and Involuntary Conversions From

Other Than Casualty or Theft--Property Held More Than 1 Year,

petitioners reported, inter alia, a “28% Rate” loss of $21,749

attributable to Kildare Timmy.

In Part II of petitioners’ 1998 Form 4797, Ordinary Gains

and Losses, petitioners claimed, inter alia, a loss of $11,541. 

In an explanatory statement attached to that form, petitioners

claimed that such claimed ordinary loss was attributable to,

inter alia, Mr. Ramsburg’s sole proprietorship’s sale of nine of
- 19 -

the racing and breeding horses that Kildare Timmy distributed to

him. In that explanatory statement, petitioners claimed the

following, inter alia, with respect to the sale of those nine

horses: 

ORDINARY GAINS AND LOSSES

Description Date acquired Date sold Sales price

 Cost 

or basis

Gain 

or (loss)

Idealists Hanover 01/01/98 04/01/98 $2,500 $4,339 ($1,839)

Brief Wars 01/01/98 11/01/98 12,750 110,621 2,129

Western Skylark 01/01/98 11/01/98 5,000 14,871 129

Rare Guy 01/01/98 11/01/98 1,500 15,279 (3,779)

Overture Siera 01/01/98 06/01/98 0 3,319 (3,319)

Happening Hanover 01/01/98 05/01/98 1,000 3,883 (2,883)

Yankee Skylark 01/01/98 11/01/98 1,200 

11 1,199

Overture Hanover 01/01/98 06/01/98 0 911 (911)

Vidalita Hanover 01/01/98 06/01/98 1,616 3,883 (2,267)

Total to Form 4797, Part II, Line 10 25,566 37,107 (11,541)

1There is an unexplained discrepancy between the cost or basis that

petitioners claimed in petitioners’ 1998 return with respect to each of the

four horses Brief Wars, Western Skylark, Rare Guy, and Yankee Skylark that

Kildare Timmy distributed to Mr. Ramsburg and the amount that Kildare Timmy

reported in its 1998 partnership return as the gross sales price for which it

allegedly sold each such horse to Mr. Ramsburg. It is petitioners’ position

that Mr. Ramsburg purchased each of the above-referenced horses from Kildare

Timmy for a price equal to Kildare Timmy’s adjusted basis in each such horse

as reflected in Kildare Timmy’s books and records. Thus, under petitioners’

position, Mr. Ramsburg’s cost or basis in each of the four horses in question

on the date on which Kildare Timmy distributed those horses to him should have

been equal to the price that he claimed he paid for each such horse. However,

Kildare Timmy reported in its 1998 partnership return the following gross

sales price, and petitioners reported in their 1998 return the following cost

or basis, with respect to each of those horses:

Horses

Gross sales price

reported in 1998

partnership

 return 

Cost or basis

reported in

petitioners’ 1998 

 return 

Brief Wars $2,121 $10,621

Western Skylark 2,202 4,871

Rare Guy 5,029 5,279

Yankee Skylark 0 1

Thus, in petitioners’ 1998 return, petitioners claimed a significantly higher

cost or basis in each of Brief Wars and Western Skylark and a higher cost or

basis in each of Rare Guy and Yankee Skylark than the gross sales price that

Kildare Timmy claimed in its 1998 partnership return it received for each such

horse.
- 20 -

15The parties stipulated that the respective amounts of

ordinary passive losses and sec. 1231 passive losses that petitioners claimed were attributable to Kildare Timmy were incorrect

and stipulated the correct amount of each such loss. 

At the bottom of petitioners’ 1998 Form 4797, petitioners indicated that the ordinary loss of $11,541 claimed in that form was

attributable to the “ENTIRE DISP OF PAS ACT” conducted by Kildare

Timmy. 

On May 17, 1999, petitioners jointly filed Form 1045,

Application for Tentative Refund (Form 1045), for each of the

taxable years 1996 and 1997, in which they claimed refunds based

on an alleged NOL for 1998 that they carried back from that year

to each of those earlier years. The claimed NOL for 1998 was

attributable to petitioners’ having treated as nonpassive losses

in petitioners’ 1998 return petitioners’ passive losses (i.e.,

ordinary passive losses and petitioners’ section 1231 passive

losses)15 attributable to Kildare Timmy. Form 1045 showed the

following:

2d preceding

tax year ended 1996

1st preceding

tax year ended 1997

Before

carryback

After

carryback

Before

carryback

After

carryback

Adjusted gross income from tax

return or as previously adjusted

$369,867 $369,867 $402,727 $402,727

Net operating loss deduction

after carryback

 0 360,918 0 124,219

Deductions 133,168 133,168 316,113 316,113

Taxable income 236,699 (124,219) 86,614 (37,605)

Income tax 69,543 0 18,899 0

Total tax liability 69,543 0 18,899 0

Form 1045 also showed decreases of $69,543 and $18,899 in peti-
- 21 -

16Although petitioners’ 1999 return did not provide the

names of the three horses that Mr. Ramsburg sold, the cost or

basis of each of those horses that was reported in petitioners’

1999 return (i.e., $7,090, $2,655, and $2,705) is the same as the

gross sales price that was reported in Kildare Timmy’s 1998

partnership return with respect to each of the horses Bar B Wars,

Justen’s Western, and Western Shuffle that Kildare Timmy distributed to Mr. Ramsburg on Jan. 1, 1998, and that petitioners claim

Kildare Timmy sold to Mr. Ramsburg on that date. 

tioners’ total tax liabilities for their taxable years 1996 and

1997, respectively. 

At a time not disclosed by the record, petitioners jointly

filed Form 1040 for their taxable year 1999 (petitioners’ 1999

return). That return included Form 4797 (petitioners’ 1999 Form

4797). In Part II of that form, Ordinary Gains and Losses,

petitioners claimed an ordinary gain of $89,471. In an explanatory statement attached to petitioners’ 1999 Form 4797, petitioners claimed that that ordinary gain was attributable to, inter

alia, the sale of three of the racing and breeding horses that

Kildare Timmy distributed to Mr. Ramsburg. Petitioners claimed

the following with respect to the sale of those three horses:16

Horse

Date

acquired

Date

 sold Sales Price

Cost

or basis

Gain 

or (loss)

J R Ramsburg

Stables

01/01/98 06/04/99 $3,585 $7,090 ($2,067)

J R Ramsburg

Stables

01/01/98 11/05/99 61,050 2,655 58,933

J R Ramsburg

Stables

01/01/98 11/05/99 32,457 2,705 30,301

Total to be included in Form 4797, 

Part II, Line 10

$97,092 $12,450 $87,167 

At a time not disclosed by the record, petitioners jointly

filed Form 1040 for their taxable year 2002 (petitioners’ 2002
- 22 -

17The record does not contain any tax return of petitioners

for 2000 or 2001. 

18Petitioners’ claimed nonpassive losses included petitioners’ ordinary passive losses and petitioners’ sec. 1231 passive

(continued...)

return).17 Petitioners’ 2002 return included Form 4797 (petitioners’ 2002 Form 4797). In Form 4797, Part I, petitioners

reported, inter alia, a loss of $102,281. In an explanatory

statement to petitioners’ 2002 Form 4797, petitioners claimed

that that loss was attributable to, inter alia, the sale of two

of the racing and breeding horses that Kildare Timmy distributed

to Mr. Ramsburg. In that explanatory statement, petitioners

claimed the following with respect to the sale of those two

horses: 

Horse

Date

acquired

Date

 sold Sales price Depreciation

Cost

or basis

Gain

or (loss)

Northern Crush 01/01/98 01/02/02 $0 $4,439 $7,017 ($2,578)

Tarport Reactor 01/01/98 12/11/02 368 2,158 3,411 (885)

In Part III of petitioners’ 2002 Form 4797, Gain From

Disposition of Property Under Sections 1245, 1250, 1252, 1254,

and 1255, petitioners also claimed the following with respect to

a horse named Yankee Bardot:

Date

acquired

Date

 sold 

Gross

sales

 price 

Cost or other

basis plus

expense of sale 

Depreciation

allowed

or allowable

Adjusted

 basis Total gain

01/01/98 07/31/02 $1,200 $398 $253 $145 $1,055

Respondent issued to petitioners a notice for their taxable

years 1996, 1997, and 1998. In the notice, respondent, inter

alia, disallowed petitioners’ claimed nonpassive losses.18 The
- 23 -

18(...continued)

losses. See supra note 3.

19See supra note 15. 

20See supra note 15.

21The parties do not address the application of sec. 7491(a)

in the instant case. In any event, on the record before us, we

find that petitioners did not introduce credible evidence with

respect to the factual issues presented. On that record, we

further find that petitioners have failed to carry their burden

of establishing that they satisfied the applicable requirements

of sec. 7491(a)(2). Under such circumstances, we conclude that

the burden of proof does not shift to respondent under sec.

7491(a) with respect to the factual issues presented.

notice provided in pertinent part:

(a) As a result of adjustments in 1998, you do not have

a net operating loss carryback in 1996 and 1997. 

Therefore, taxable income is increased $360,919 and

$124,219 for 1996 and 1997 respectively.

(b), (c) t is determined that the losses claimed in the

amounts of $784,668[19] on Schedule E and $21,749[20] on

Form 4797 for the disposition of Kildare Timmy partnership is not allowed. You have not established that you

are entitled to the loss. [Reproduced literally.]

OPINION

Burden of Proof

Petitioners bear the burden of proving that the determinations in the notice are erroneous.21 See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). 

The Court’s Evaluation of Evidence

in the Record on Which Petitioners Rely

Petitioners have attempted to satisfy their burden of proof

in this case through certain testimonial and documentary evidence. 
- 24 -

Testimonial Evidence

At the trial in this case, petitioners called Mr. Ramsburg,

Mr. Stottlemeyer, and Mr. Rippeon as witnesses. With respect to

the testimony of Mr. Ramsburg, we did not find him to be credible. In addition, we found Mr. Ramsburg’s testimony to be

evasive, uncorroborated, and/or self-serving in certain material

respects. We shall not rely on such testimony of Mr. Ramsburg to

establish petitioners’ position in this case. 

With respect to the testimony of Mr. Stottlemeyer, we found

his testimony to be implausible, questionable, vague, conclusory,

and/or uncorroborated in certain material respects. We also

found Mr. Stottlemeyer’s testimony to serve in certain material

respects the interests of Mr. Ramsburg, who was Mr.

Stottlemeyer’s longtime friend from childhood and the owner of

Frederick Underwriters, Mr. Stottlemeyer’s employer, and who gave

Mr. Stottlemeyer the opportunity to be his partner in Kildare

Timmy. We shall not rely on such testimony of Mr. Stottlemeyer

to establish petitioners’ position in this case. 

With respect to the testimony of Mr. Rippeon, one of the

certified public accountants employed by Keller Bruner to prepare

petitioners’ returns for the years at issue, Kildare Timmy’s

partnership returns, and the Keller Bruner checklists utilized in

preparing such partnership returns, Mr. Rippeon had no personal

knowledge about any of the underlying facts with respect to the
- 25 -

22The documents on which petitioners rely included certain

tax returns of petitioners and Kildare Timmy, respectively. A

tax return is merely a statement of the claim of the person

filing such return and does not establish the truth of the

matters set forth therein. See, e.g., Wilkinson v. Commissioner,

71 T.C. 633, 639 (1979). 

23Sec. 469(g)(1) provides in pertinent part:

SEC. 469. PASSIVE ACTIVITY LOSSES AND CREDITS LIMITED.

* * * * * * *

(g) Dispositions of Entire Interest in Passive

Activity.--If during the taxable year a taxpayer disposes of his entire interest in any passive activity

(or former passive activity), the following rules shall

apply:

(continued...)

matters reported in those returns and checklists. Instead, Mr.

Rippeon relied on representations and documents that Mr. Ramsburg

and/or Mr. Stottlemeyer provided to him. We shall not rely on

Mr. Rippeon’s testimony about any of the underlying facts with

respect to the matters reported in the returns and checklists in

question to establish petitioners’ position in this case. 

Documentary Evidence

The record contains various documents on which petitioners

rely that were prepared, and/or that contained information

supplied, by Mr. Ramsburg and/or Mr. Stottlemeyer.22 We shall

not rely on such documents to establish petitioners’ position in

this case. 

Section 469(g)(1)

We must decide whether section 469(g)(1)23 permits petition-
- 26 -

23(...continued)

(1) Fully Taxable Transaction.--

(A) In general.--If all gain or loss

realized on such disposition is recognized,

the excess of–-

(i) any loss from such activity for

such taxable year (determined after the

application of subsection (b)), over

(ii) any net income or gain for

such taxable year from all other passive

activities (determined after the application of subsection (b)), 

shall be treated as a loss which is not from

a passive activity.

(B) Subparagraph (A) not to apply to

disposition involving related party.--If the

taxpayer and the person acquiring the interest bear a relationship to each other described in section 267(b) or section

707(b)(1), then subparagraph (A) shall not

apply to any loss of the taxpayer until the

taxable year in which such interest is acquired (in a transaction described in subparagraph (A)) by another person who does not

bear such a relationship to the taxpayer.

ers to treat for 1998 petitioners’ passive losses attributable to

Kildare Timmy as nonpassive losses. It is petitioners’ position

that section 469(g)(1) allows such treatment. Respondent disagrees. 

In support of petitioners’ position, petitioners argue that

Mr. Ramsburg 

disposed of his entire interest in the activity of the

Kildare Timmy partnership in a transaction in which

gain or loss was recognized, as required by §469(g)(1)

* * * 
- 27 -

24Although not altogether clear, it appears that, when

petitioners contend that Mr. Ramsburg purchased the “horses” from

Kildare Timmy, petitioners intend to include in their reference

to the “horses” not only Kildare Timmy’s racing and breeding

horses but also its stud rights, and we so assume hereinafter. 

(continued...)

The transaction in which gain or loss was recognized was the taxable liquidation of the Kildare Timmy

partnership. The liquidation was fully taxable because

the only property distributed in liquidation was money.

* * * As a result, the Petitioners incurred a loss on

the disposition of Jacob R. Ramsburg, Jr.’s interest in

the Kildare Timmy partnership in the amount of $69,772.

* * *

Provided that the Tax Court finds that the sale of

the horses from the partnership to Mr. Ramsburg was a

sale for tax purposes, it is clear that the liquidation

of the partnership, involving the distribution of only

money, was a fully taxable transaction under §731 of

the Code. Section 731(a) of the Code provides that

gain or loss is recognized in the case of a liquidating

distribution by a partnership to a partner which only

consists of money. Any gain or loss recognized pursuant to §731(a) of the Code is “considered as gain or

loss from the sale or exchange of the partnership

interest of the distributee partner.” I.R.C. §731(a) 

* * *. 

With regard to the [sic] Mr. Ramsburg’s purchase

of the horses from the Kildare Timmy partnership, Mr.

Ramsburg and Mr. Stottlemeyer were dealing at arms’

length. The evidence indicates that, at the time the

sale of the horses was agreed to, each owned 50% of the

capital interest of the partnership. * * * Specifically, the form of the transaction was structured as a

sale, the transaction was accounted for on the 1998

partnership return and the Petitioners’ 1998 individual

tax return as a sale, both of which were prepared by

Petitioners’ certified public accountants. * * *

With respect to Kildare Timmy’s claimed sale of its horses to Mr.

Ramsburg, petitioners contend:

the evidence establishes that [petitioner] Jacob R.

Ramsburg, Jr. purchased the horses[24] from the Kildare
- 28 -

24(...continued)

If petitioners do not intend to include Kildare Timmy’s stud

rights in their reference to the “horses” that Mr. Ramsburg

allegedly purchased from Kildare Timmy, petitioners must concede

that Kildare Timmy distributed to Mr. Ramsburg not only money but

also such stud rights in liquidation of his interest in that

partnership. 

Timmy partnership at book value prior to the liquidation of the partnership and that, as a result, the only

assets distributed to Mr. Ramsburg in liquidation of

the partnership consisted of the remaining balance in

the partnership checking account [Kildare Timmy bank

account balance] and the proceeds from the partnership’s sale of the horses to Mr. Ramsburg. Under

§731(a)(2) of the Code, Petitioners therefore recognized a loss on the distribution of the cash balance of

the checking account and the proceeds from the sale of

the horses. The fact that the fair market value of the

horses owned by the Kildare Timmy partnership was not

precisely determined does not change the fact that Mr.

Ramsburg recognized a loss on the receipt of the liquidating distribution from the partnership. * * * Mr.

Stottlemeyer effectively received, in liquidation of

the partnership, a credit equal to his 50% share of the

assets of the partnership against his liability to Mr.

Ramsburg in the amount of $146,750. 

In support of respondent’s position that section 469(g)(1)

does not permit petitioners to treat for 1998 petitioners’

passive losses attributable to Kildare Timmy as nonpassive

losses, respondent argues:

a taxpayer who disposes of an interest in a passive

activity may deduct suspended losses only if three

conditions are satisfied: (1) the taxpayer disposes of

his entire interest in the activity; (2) the disposition is in the form of a fully taxable transaction

(i.e., one in which the full amount of the gain or loss

inherent in the activity is recognized); and (3) the

person acquiring the interest is not related to the

taxpayer. I.R.C. § 469(g). The petitioners failed to

satisfy any of these conditions. 

According to respondent,
- 29 -

petitioners are not entitled to claim the suspended

passive activity losses because they have not established that they (1) disposed of their entire interest

(2) in a fully taxable transaction (3) to an unrelated

party. 

Indeed the evidence established that petitioners

maintained and increased their interest in the passive

activity. Moreover, petitioner failed to establish

that the liquidating distribution petitioner received

when the partnership terminated required recognition of

either gain or loss under the provisions of I.R.C. §

731. Finally, the liquidating distribution petitioner

received from the partnership was between related

parties within the provisions of I.R.C. § 469(g)(1)(B).

We need not decide whether respondent is correct in arguing

that petitioners have not established that Mr. Ramsburg (1) did

not dispose of his entire interest in the passive activity in

question (2) to an unrelated party. Even if we were to reject

such contentions of respondent, on the record before us, we

nonetheless would, and do, find that petitioners have failed to

carry their burden of showing that section 469(g)(1) permits them

to treat for 1998 petitioners’ passive losses attributable to

Kildare Timmy as nonpassive losses. That is because on that

record we find that petitioners have failed to carry their burden

of establishing that, as required by section 469(g)(1)(A), they

recognized under section 731 all of the gain or all of the loss,

as the case may be, realized when Mr. Ramsburg received from

Kildare Timmy a distribution in liquidation of his interest in

that partnership. 

It is petitioners’ position that the distribution in liqui-
- 30 -

25The only money distributed by Kildare Timmy to Mr.

(continued...)

dation of Mr. Ramsburg’s interest in Kildare Timmy that that

partnership made to him on January 1, 1998, “was a fully taxable

transaction under §731”. That is because, according to petitioners, “the only property distributed in [that] liquidation was

money.” Petitioners acknowledge on brief that the linchpin in

their position under section 731, and thus in their position

under section 469(g)(1)(A), is the Court’s acceptance of their

contention that the alleged “sale of the horses from the partnership to Mr. Ramsburg was a sale for tax purposes”. We thus turn

to petitioners’ contention that Mr. Ramsburg purchased Kildare

Timmy’s racing and breeding horses and stud rights for their

respective book values. 

On the record before us, we find that petitioners have

failed to show that, in form or in substance, Mr. Ramsburg

purchased Kildare Timmy’s racing and breeding horses and stud

rights on January 1, 1998, immediately before that partnership

made a distribution of assets to him in liquidation of his

interest in that partnership. No money changed hands from Mr.

Ramsburg to Kildare Timmy when he allegedly purchased the horses

and the stud rights in question; nor did any money change hands

from Kildare Timmy to Mr. Ramsburg when that partnership allegedly distributed the proceeds from such alleged sale to Mr.

Ramsburg in liquidation of his interest in that partnership.25
- 31 -

25(...continued)

Ramsburg in liquidation of his interest in that partnership was

the Kildare Timmy bank account balance. 

Petitioners claim that no money needed to change hands between

Kildare Timmy and Mr. Ramsburg because the money that Mr.

Ramsburg allegedly paid to Kildare Timmy to purchase the horses

and the stud rights in question would have been immediately

distributed by Kildare Timmy to Mr. Ramsburg in liquidation of

his interest in that partnership. On the record before us, we

reject petitioners’ self-serving claim. Petitioners, in effect,

ask us to accept their contention that Mr. Ramsburg purchased

Kildare Timmy’s racing and breeding horses and stud rights

because that is what Mr. Ramsburg told (1) Mr. Stottlemeyer, his

longtime friend and partner, (2) Mr. Rippeon, his accountant who

prepared Kildare Timmy’s 1998 partnership return and petitioners’

1998 return, and (3) the Court at the trial in this case. As

stated above, we are unwilling to rely on the testimony of Mr.

Ramsburg, Mr. Stottlemeyer, and Mr. Rippeon to establish petitioners’ position in this case. We also are unwilling to rely on

documents in the record that were prepared, and/or that contained

information supplied, by Mr. Ramsburg and/or Mr. Stottlemeyer,

such as Kildare Timmy’s 1998 partnership return in which that

partnership claimed to have sold to Mr. Ramsburg its racing and

breeding horses and stud rights for their respective book values. 

Based upon our examination of the entire record before us,
- 32 -

26On the record before us, we also find that petitioners

have failed to carry their burden of establishing that on Jan. 1,

1998, Mr. Stottlemeyer “effectively received [from Kildare

Timmy], in liquidation of the partnership, a credit equal to his

50% share of the assets of the partnership against his liability

to Mr. Ramsburg [under Mr. Stottlemeyer’s note] in the amount of

$146,750.” In addition, Mr. Stottlemeyer’s note that he signed

on Dec. 31, 1994, provided that Mr. Stottlemeyer promised to pay

to Mr. Ramsburg the “lesser of my [Mr. Stottlemeyer’s] share of

cash proceeds from [the] disposition of horses owned by the

entity known as Kildare Timmy or the sum of one hundred fourty

[sic] six thousand seven hundred and fifty Dollars * * * with

interest * * * at the rate of 0% per annum.” Mr. Stottlemeyer’s

note did not specify any date(s) on which Mr. Stottlemeyer was to

make any payment(s) thereunder. On the record before us, we find

that petitioners have failed to carry their burden of establishing that there was a loan by Mr. Ramsburg to Mr. Stottlemeyer

that was evidenced by Mr. Stottlemeyer’s note. See, e.g., Haag

v. Commissioner, 88 T.C. 604, 616 n.6 (1987), affd. without

published opinion 855 F.2d 855 (8th Cir. 1988). Assuming

arguendo that petitioners had carried their burden of establishing that there was a loan by Mr. Ramsburg to Mr. Stottlemeyer

that was evidenced by Mr. Stottlemeyer’s note, we have found that

there was no sale by Kildare Timmy to Mr. Ramsburg of its horses

and stud rights. As a result, there were no “cash proceeds from

(continued...)

we find that petitioners have failed to carry their burden of

establishing that Mr. Ramsburg purchased from Kildare Timmy on

January 1, 1998, its racing and breeding horses and stud rights. 

On that record, we further find that petitioners have failed to

carry their burden of establishing that Mr. Ramsburg received

only money from Kildare Timmy in liquidation of his interest in

that partnership. On the record before us, we find that on

January 1, 1998, Kildare Timmy distributed to Mr. Ramsburg in

liquidation of his interest in that partnership not only money

(i.e., the Kildare Timmy bank account balance) but also its

racing and breeding horses and stud rights.26 
- 33 -

26(...continued)

[the] disposition of horses owned by * * * Kildare Timmy”. 

Consequently, pursuant to the terms of Mr. Stottlemeyer’s note,

Mr. Stottlemeyer did not owe Mr. Ramsburg anything. 

Having rejected the linchpin in petitioners’ position under

section 469(g)(1)(A) (viz., Mr. Ramsburg purchased from Kildare

Timmy its horses and stud rights immediately before Kildare Timmy

made a distribution to him in liquidation of his interest in that

partnership), we shall now analyze whether, as required by

section 469(g)(1)(A), petitioners recognized all of the gain or

all of the loss, as the case may be, realized upon the distribution by Kildare Timmy to Mr. Ramsburg of Kildare Timmy’s horses

and stud rights and Kildare Timmy’s bank account balance. 

Section 731(a) provides:

SEC. 731. EXTENT OF RECOGNITION OF GAIN OR LOSS ON 

DISTRIBUTION.

(a) Partners.--In the case of a distribution by a

partnership to a partner--

(1) gain shall not be recognized to such

partner, except to the extent that any money distributed exceeds the adjusted basis of such partner’s interest in the partnership immediately

before the distribution, and 

(2) loss shall not be recognized to such

partner, except that upon a distribution in liquidation of a partner’s interest in a partnership

where no property other than that described in

subparagraph (A) or (B) is distributed to such

partner, loss shall be recognized to the extent of

the excess of the adjusted basis of such partner’s

interest in the partnership over the sum of--

(A) any money distributed, and
- 34 -

27Respondent appears to take the position, with no explanation, that Mr. Ramsburg’s adjusted basis in his interest in

Kildare Timmy was $139,569 (before taking into account Kildare

Timmy’s $4,592 loss from trade or business activities that it

claimed in its 1998 partnership return and that it reported in

that return as Mr. Ramsburg’s distributive share of such loss). 

(B) the basis to the distributee, as

determined under section 732, of any unrealized receivables (as defined in section

751(c)) and inventory (as defined in section

751(d)). 

On the record before us, we find that petitioners have

failed to carry their burden of establishing (1) Mr. Ramsburg’s

adjusted basis in his interest in Kildare Timmy27 and (2) the

fair market value of each of the noncash assets (i.e., the racing

and breeding horses and the stud rights) that Kildare Timmy

distributed to Mr. Ramsburg in liquidation of his interest in

that partnership. On that record, we further find that petitioners have failed to carry their burden of showing whether the

total of (1) the Kildare Timmy bank account balance of $908.71

and (2) the aggregate of the respective fair market values of the

racing and breeding horses and the stud rights that we have found

Kildare Timmy distributed to Mr. Ramsburg in liquidation of his

interest in that partnership was equal to, greater than, or less

than Mr. Ramsburg’s adjusted basis in such partnership interest. 

As a result, we find that petitioners have failed to carry their

burden of showing (1) whether Mr. Ramsburg realized a gain or a

loss upon Kildare Timmy’s distribution to him of the horses, stud

rights, and bank account balance in question and (2) whether all
- 35 -

28We seriously doubt that sec. 731(a) required petitioners

to recognize all of any gain or all of any loss, as the case may

be, realized upon Kildare Timmy’s distribution to Mr. Ramsburg of

the horses, stud rights, and bank account balance in question. 

It is significant that if there were a gain realized upon such

distribution, the assets that Kildare Timmy distributed to Mr.

Ramsburg included not only money but Kildare Timmy’s racing and

breeding horses and stud rights. Under sec. 731(a), gain is not

to be recognized except to the extent that any money distributed

exceeds the adjusted basis of the partner’s interest in the

partnership immediately before the distribution. If there were a

loss realized upon the distribution by Kildare Timmy to Mr.

Ramsburg of the horses, stud rights, and bank account balance in

question, sec. 731(a)(2) provides that loss is not to be recognized except that, upon a distribution in liquidation of a

partner’s interest in a partnership, where no property is distributed other than money, unrealized receivables as defined in

sec. 751(c), and inventory as defined in sec. 751(d), loss is to

be recognized to the extent of the excess of the adjusted basis

of the partner’s interest in the partnership over the sum of 

(1) any money distributed and (2) the basis to the distributee,

as determined under sec. 732, of any such unrealized receivables

and any such inventory. In this connection, for purposes of sec.

731(a)(2), each of Kildare Timmy’s racing and breeding horses and

its stud rights may constitute an unrealized receivable as

defined in sec. 751(c), but only to the extent of the amount to

be treated as gain to which sec. 1245(a) would apply if at the

time Kildare Timmy distributed each such asset to Mr. Ramsburg,

that partnership had sold each such asset at its fair market

value. See secs. 731(a)(2)(B), 751(c). Thus, for purposes of

sec. 731(a)(2), any determination of whether Kildare Timmy

distributed “unrealized receivables” to Mr. Ramsburg depends on

Kildare Timmy’s basis in and the fair market value of each such

horse and stud rights. Even if there were any sec. 1245(a) gain

associated with any of Kildare Timmy’s horses or stud rights,

none of any loss realized by Mr. Ramsburg upon the distribution

to him by Kildare Timmy of the horses, stud rights, and bank

account balance in question would be recognized under sec.

731(a)(2). That is because a distribution of an unrealized

receivable in the form of sec. 1245(a) gain necessarily involves

the distribution of the underlying asset (i.e., each of the

horses and the stud rights in question) to which the sec. 1245(a)

gain attaches. Therefore, the distribution in liquidation of Mr.

(continued...)

of any such gain or all of any such loss, as the case may be, was 

to be recognized under section 731(a).28 Assuming arguendo that 
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28(...continued)

Ramsburg’s interest in Kildare Timmy would have included property

other than money, unrealized receivables, and inventory. See

sec. 731(a)(2). Moreover, if any of Kildare Timmy’s horses or

stud rights that it distributed in liquidation of Mr. Ramsburg’s

interest in that partnership were not to have any sec. 1245(a)

gain associated with it, none of any loss realized by Mr.

Ramsburg upon that distribution would be recognized under sec.

731(a)(2). That is because the distribution in liquidation of

Mr. Ramsburg’s interest in Kildare Timmy would have included

property other than money, unrealized receivables, and inventory. 

See sec. 731(a)(2). 

29We shall, however, address petitioners’ contention that on

Jan. 1, 1998, the date on which we have found Kildare Timmy

distributed to Mr. Ramsburg its horses and stud rights and the

Kildare Timmy bank account balance, Mr. Stottlemeyer owned a 50-

percent capital interest in Kildare Timmy. In support of that

contention, petitioners assert, inter alia, that, in addition to

cash, Mr. Stottlemeyer made capital contributions to Kildare

Timmy of Mr. Stottlemeyer’s management services. On the record

(continued...)

we had found that Mr. Ramsburg disposed of his entire interest in

the passive activity in question to an unrelated person, on the

record before us, we find that petitioners have failed to carry

their burden of establishing that, as required by section

469(g)(1)(A), they recognized all of any gain or all of any loss,

as the case may be, realized upon any such disposition.

Based upon our examination of the entire record before us,

we find that section 469(g)(1) does not permit petitioners to

treat for 1998 petitioners’ passive losses attributable to

Kildare Timmy as nonpassive losses. 

We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.29
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29(...continued)

before us, we reject petitioners’ contention that Mr.

Stottlemeyer owned a 50-percent capital interest in Kildare Timmy

on Jan. 1, 1998. In this regard, we have found that (1) Mr.

Ramsburg and Mr. Stottlemeyer made cash capital contributions to

Kildare Timmy totaling around $1,336,459 and $282,187, respectively, (2) in return for Mr. Stottlemeyer’s management services,

Mr. Stottlemeyer did not receive any salary from Kildare Timmy or

increases in his Kildare Timmy capital account, and (3) on Jan.

1, 1998, Kildare Timmy distributed all of its assets (i.e., the

racing and breeding horses, the stud rights, and the Kildare

Timmy bank account balance) to Mr. Ramsburg and distributed none

of its assets to Mr. Stottlemeyer. 

To reflect the foregoing,

Decision will be entered

for respondent.