Free Motion to Dismiss - Rule 12(b)(1) - District Court of Federal Claims - federal

Case 1:05-cv-01189-CFL
SCHEDULE X.l . (Form'1065)
Deøirtmeni of the Treasury
I"t~rnal Revenue S~rvic~

Partner's Share of Income, Credits, Deductions, etc.
For calendar year 1983 or fiscal year
bein~ing _. __ u__. _. __ _ n _ _ _.. _.' 1983, and ending n... _.. _. un__ _' _. __., 19__. '

Document 13-3

Filed 08/17/2006

Page 1 of 31
OMS No. 1545.009

~~83
MCGANN PTR
L

Partnership's .~ .. ~ .. . I. Identifying number .. . _ ~. . ..

TI-IDHAS il
Si y WESíti) i Nt)

, PU 51-0121089 DECa3 " GEORGE C WALUEFF (, 051 T H
. MCWAL COMPANY
'~PO BOX

~

(jE72WYN, /11A Is partn~r a ~eneral partner (see page 3 of r-

. WILM

46 7

i

DEI

i

19899

38~
(

Instructions). ; . . . . . . . . . u: Yes 0 No

(I) Before d creue (II) End of

B Partner's share of liabilties (see page 10 of Instructions):
Nonrecourse . . . . . . . . ,$ ____________._____

D Enter partner's percentage of:

or lennin tion y~ar

Profit sharing . . __ . _. _ . . % __. .f'-.. . %
loss sharing ... " - - - . - t _ __ % . __ -!.?- .. . %
Ownership of capital , . . % _ . ,)..y_ _ %
E IRS Center where partnership filed return .... _ -t1j.~J.l:.. 01.

Other . . . . . . . . . . ,$ ___I.t-!.9.-lk...n_
C What

type of entity is this partner? .. --._I.J)L'Ij-r!f).f.__

F

d) Income not included (a) Losse not inluóe (f) Withciiwais a d in column (e), plus in column (c). pl

nontaia:ile income unallowabl~ deduction distributions

(Ii) Capital account
at end of year

3,3
(ii) DistrIbutive iiniire Item
1 Ordinary income (loss). . . . .

7'YY

7) l/ vi.
unl in column (b) on:
Sch. . Part II, col. (d) or (e)

040 flers enter the

.. o -i ..
Gl

...
o u
E

2 Guaranteed payments. . . . .
3 Interest from AIl.Savers Certificates

4 Dividends qualifying for exclusion

5 Net short-term capital gain (loss). . 6 Net long-term capital gain (loss). .
7 Net gain (loss) from involuntary conversions due to casualty or theft

c:

Sch. . Part fi, column (e) Sch. . Part I, line 4 Sch. . Part 1I,Iine 9 Sch. ,line 4, col. f. or g. " ?y¡J Sch. . line 12, co!. f. or g. See a ached instructions

8 Other net gain (loss) under section 1231 .

g Other attach schedule
el
10 Charitable contributions: 50%.. _ _ _ _. _,30% _ .. .. _. .' 20%. _.. .. .

Form 797, line 1
(Enler on applicable lines of your reI

urn)

o u
'C

c:

See F rm 1040 instructions
Sch. E Part If.

11 Expense deduction for recovery propert (section 179 ) , , . .
12 a Payments for partner

line 28

:i

to an IRA . . . . . . . . . . . .

Q

OJ

b Payments for partner to a Keogh Plan (Type of plan ,. . __ _... _ ) .

13 Other (attach schedule)

c Payments for partner to Simplified Employee Pension (SEP) .

See F rni 1040 instructions Form 040, line 26 Form 040. line 26
(Eoler on ppliçible lines of your relurn)

=ë

'"
OJ

14 Jobs credit. . . . . . .
is Credit for alcohol used as fuel.

Farm 884

U

~

16 Credit for income tax withheld

Form 78
See Fo m 1040 instructions
(Enler on pplicable lines of your relurn)

17 Other (attach schedule)

o
c:
Gl

" .i -

"-

1 ll Ii Gross farming or fishing income b Net earnings (loss) from self-employment. c Other attach schedule ......
19 ii Accelerated depreciation on non

" C,

recovery real propert or 15-year real propert.

b Accelerated depreciation on leased personal propert or leased recovery propert other than IS'year real propert. , . . . . .

.! .. "e ~iia

~ 1/

c Depletion (other than 011 and gas) . . . . . . . . . . .

Q. -

~

d (1) Excess intangible driling costs from oil, gas, or geothermal wells (2) Net incòme from on. gas, or geothermal wells
e Net investment income (loss). . . , . , .

f Other attach schedule '" . . . . .
For Paperwork Reôuctlon Act Notice. see Form 1065 Instructions.

Form 6 51, line 2e(2)

See att~ched instructions
Schedule Krl (Form 1065) 1983
¡

.. .

i it

..

EXHIBIT
1

j

B-1

Case 1:05-cv-01189-CFL
.. ..
.. II 'J£
II

Document 13-3

Filed 08/17/2006
(b) Amount

Page 2 of 31

(ll) DistrIbutive share Item
20 a Investment interest expense:

(1) Indebtedness in rr~d befor

r: II

(2) Indebtedness in /11/75, but after 12/16/69 .
(3) Indebtednessincurrèd after /10/75..,.

.. ..
C

E

b Net investment income (loss) . . . . . . . . . . . .
c Excess expenses from "net lease propert" . . . . '. . , .
d Excess of net long-term capital gain over net short-term capital

II

~

loss from investment propert . . . . . . . . . . . . . .

.. II
..

21 .

Type of income .. _ _ _ .. _.. _ _. _ _ _ _ _. _. _ _. _.. _ _ . _ _ _ _. _ _ _. _. _ .... _.

b

Name of foreign country or U.S. possession. __.. ._u.. .Huu__.u
Total gross income from sources outside the U.S. (attach schedule) .
Total applicable deductions and losses (attach schedule) .
Total foreign taxes (check one): ~ q Paid

1116, Checkboxes
1116, Part i

..
i-

II

c
d
II

i:

Õ
Õ
.. 0~II ~

ll

11l6,Parti
1116, Part I 1116, P~rt II

0 . Accnued .

f g

Reduction in taxes available for credit (attach schedule).
Other (attach schedule) . . , . .

1116,Partlll
1116. instructions

22

recry propert b Other.,.,'
recery propert d Other
II

Unadjusted basis

of new a 3-Year. .

= II i: i. ~E 't ci ..

~ù Ii_
0;" .. i:

!! . J

ttaGhed instructions
ttached instructions ttached instructions ttached instructions 3468. instr., line 2 3468, line 3 3468, line 4 3468, line 6a,b,or c

Unadjusted basis of us C '3-Year,:.,

Nonrecovery propert (see page 15 of Instructions) (attach schedule)
New commuter highway vehicle . ~
Used

II ..

f

0. -

g
h

commuter highway vehicle . .

II

..

E CI_
ri =6

23

a
b

Description of propert
(state whether recovery or nonrecovery propert)

Properties: A B
Qualified rehabilitation expenditures ~

c

a: (. ..

II II

.. i: 't .. II E
:OM

"-

Date placed in service

c
d

Cost or other basis
Class of recovry proper.

:: &l II ;,

~::. .... 0 CI
" ..

ty or original estrmated
useful

life . . . ,

$

Date item cease to be in.

0.

vestment credit propert

....

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Case 1:05-cv-01189-CFL

Document 13-3

Filed 08/17/2006

Page 3 of 31

Department of the Treasury Internal Revenue Service
i 040 Waverly Avenue

Mail Stop:

632-3

, t

Person to Contact:

P.O. BOX 630

Joan Steigele
Employee Identification Number:

Holtsvile NY 11742

0178326024
Telephone Number:

Date:

631 447-6665
~~:~ f ;~ C~. J

Hours:
8:00AM-11 :OOAM Time Zone:

Thomas H & Evelyn McGan 512 Westwind Dr

EST
Day(s) of

Berw PA 19312-1156

the Week:

Mon- Thurs
T.=denttfcation Number:

Tax Year Ended:

-l9326

December 31, 1983

Dear Thomas H & Evelyn McGan;
Enclosed is Form 4549-A explaing how the adjustments made durg our examation of the

I above retu

affect your individual income tax retu. The Form 4549-A does not require any signatues and s~ou1d not be

retued to us, but should be kept for your records. I
If you owe additional tax, you will receive a bill for the additional ta and interest. If penalties are applicable because of the adjustments made durg our examiation, a separate report wil be mailed to you. If you are due

a refud, it will be sent to you with 6 to 8 weeks. I

If you have any questions about ths matter, please wrte to the person whose name is shown at the top of ths letter, or you may call that person at the telephone number shown.
If you prefer, you may call the IRS telephone number listed in your local directory. An employe there may be able to help you, but the offce at the address shown on ths letter is most familiar with- your ca e.

If you write to us, please provide your telephone number and the most convenient tie for us t call you in

case we need more information. Attach ths letter to any correspondence to help us identify your ase. Keep the copy for your records.
Than you for your cooperation.

Sincerely yours,

d~
Letter 2083 (SC) (Rev. 3-1986)
Cat. No. 63342P

Chief

Research and Analysis Branch

Enclosure: Fonn 4549-A Copy of this letter

z

..

EXHIBIT
2

1

,

B-3

Case 1:05-cv-01189-CFL

Document 13-3

Filed 08/17/2006

Page 4 of 31

Department of the Treasury. Internal Revenue Service

Fonm 4549A I

Income Tax Examination Changes
SS or EI Number

Pag ~ 1
Return Forri
i i

of

2

Name and Address of Taxpayer

Thomas H & Evelyn McGan
512 Westwind Dr
PA
.

"'9326
Period End

No:

1040

Person with whom

Name and Title:
I ¡

examination chnges

Berw
b.
C.

19312-1156

were discussed.
Period End 12/31/1983

1. Adjustments to Income

Pe iod End

a. Sch E-Ordinary Income 51-0121089

25,888.00

d,

e.
1.

g. h.
i.

j.
k.
i.

m, n. o. p,
2. Total Adjustments 3. Taxable Income Per Return or as Previously Adjusted
4,

,

Corrected Taxable Income
Tax Method

25,888.00 25,044.00 50,932,00
TAX RATE
¡ I

Filng Status
5.
7.

Joint
12,387.00

Tax

6. Additional Taxes I Alternative Minimum Tax

Corrected Tax Liabilty a. Investment Credi t 8. less

12.387.00 62.00

Credits

b. c.

d. 9. Balance (Line 7 less total of lines 8a through 8d) a. 10. Plus

12,325.00

Other b. Taxes c.
d.
11.

I

Total Corrected Tax Uabi/ty(line 9 plus line 10a - 10d)

12. Total Tax Shown on Return or as Previously Adjusted

12,325.00 3,705,00

I i

13. Adjustments to: a. Special Fuels Credit
b.

c. 14. Deficiency-Increase in Tax or (Overassessment
Decrease in Tax) (Line 11 less 12 adjusted by 13) 15. Adjustments to Prepayment Credits

I

8,620.00

I ¡ I

16. Balance Due or (Overpayment) (Line 14 adjusted by

-T

Line 15) ( Excludina interest and Denaltíes)

8,620.00

The Internal Revenue Service has agreements with State tax agencies under which information about Federal tax, inqluding increases or decreases, is exchanged with the States. If this change affects the amount of your State income tax, you should file the State form.

You may be subject to backup withholding if you underreport your interest, dividend, or patronage dividend income and do not pay the

required tax. The IRS may order backup withholding at 31 percent after four notices have been issued to you over a 120-day period

RGS Version 4. 00 . 00 Form CG.4549A
and the tax has been assessed and remains unpaid,

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Case 1:05-cv-01189-CFL

Document 13-3

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Page 5 of 31

Department of the Treasury - Internal Revenue Service

Form 4549A I
Name and Address of Taxpayer

Income Tax Examination Changes
55 or EI Number

p~ ge

2

of

2

Return Fi

nnNo:

Thomas H & Evelyn McGan
17. Penalties

__9326
Period End 12/31/199' Period ~nd

1040
P~riod End

a. b.
c.

d.

e.
1.

g. h.
i.

j.
k.
i.

m. n.

18. Total Penalties
Underpayment attributable to negligence: (1981-1987) A tax addition of 50 percent of the interest due on underpayment

wil accue until oaid or assessed
Underpayment attbutable to fraud: (1981-1987) A tax addition of 50 percent of the interest due on undemavment wil accrue until Daid or assessed Underpayment attributable Tax Motivated Transactions TMT interest wil accrue and be assessed at 120% of undemavment rate in accordance with IRC 6621 (c)

0.00
0.00
i i

8.620.00
8,620.00
0.00 0.00 8.620.00

19. Summary of Taxes, Penalties and Interest:
a. Balance due or Overpayment Taxes - Une 16, Page 1

b. Penalties (Line 18, Page2)-computed to 02120/2003 c. Interest (IRC§ 6601)-computed to 03/22/2003

d. TMT Interest - computed 03/2212003 on TMT underpayment
e. Amount due or refund (sum of lines a, b, c and d)

Other Information: THIS REPORT IS PREPARED BASED ON THE TAX COURT DECISION, DOCKET PARTNRSHIP, GEORGE C WALUEFF, EIN #51-0121089.

#21530-87

FROM THE

PLEASE REFER TO FORM 886-A FOR EXPLANATION OF ADJUSTED FIGURES.
IF YOU HAVE AN QUESTIONS i CONTACT YOUR TAX MATTERS PARTNER.

Examiner's Signature:

Employee ID:

Offce:

D~te:

,Joan

Steigele

0178326024

Brookhaven Service Center
i

02/20/2003
Form CG-4549A

RGS Verion 4. 00. 00

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Case 1:05-cv-01189-CFL

Document 13-3

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Page 6 of 31

Form S86-A
(Rev. January

Schedule numbe or exhbit
EX

1994)88A
Nam of

PLANA TION OF ITEMS

i I

Taxaye

Thomas H & Evelyn McGann

~326
Per Return

Taxyer Identication Number

Yeaei od Ended

is 83

Sch E-Ordinary Income 51 -0121089
Tax Period
1983
Per Exam

.

($14.696.00)

$11,192.00

ALL OR PART OF THE UNDERPAYMENT OF TAX YOU WERE REQUIRED TO SHOW ON YOUR ETURNIS A SUBSTANTIAL UNDERSTATEMENT AlTRIBUTABLE TO TAX MOTIVATED TRANSACTIONS, S DEFINED BY SECTION 6621 (C) (3) OF THE INTERNAL REVENUE CODE. ACCORDINGLY, THE ANNUAL I TEREST RATE PAYABLE ON YOUR INCOME TAXES ON THIS UNDERSTATEMENT IS 120 PERCENT OF THE ADJUSTED RATE ESTABLISHED UNDER CODE SECTION 6621(8).

Your return is being adjusted in accordance with the examination results of the Partnership return in you
are an investor.

Departent of the Treasury - Internal Revenue Service
Form 886-A(1.1994)

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Case 1:05-cv-01189-CFL

Document 13-3

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Page 7 of 31

United States

of America

Department of the Treasury

Internal Revenue Service
Date: May 5, 20l
I

CERTIFICATE OF OFFICIAL RECORD I
i i

I certify that the annexed: Form 4340 Certificate of Assessments, and Payments, consi ting of 4

transcript for the period(s) stated, and all assessments, credits, and refunds relating th reto as disclosed by the records of this office as of the date of this certification are shown ther in. Thomas H. & Evelyn G. McGann, 512 West Wind Drive, Berwyn, PA 19312 for Tax Perio (s) 198312 Form 1040.

page(s), of taxpayer(s) named herein in respect to the taxes specified, is a true and co plete

-i

Catalog Number 19002E

1 3
,

~ EXHIBIT
Form 2866 (Rev. 09-1997)
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Case 1:05-cv-01189-CFL

Document 13-3

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Page 8 of 31

- - - - - - - ~~~~ ~~ ~ ~~ ~~ - ~~ - ~~~~~~~~~~~ ~ - ~~ ~~~~~~ ~ - ~~~ - ~~~~~ - ~~~:~~ ~~~ - ~t ~~~~~ - - - - - - --

THOMAS HERBERT & EVELYN MCGANN EIN/SSN: "9326 I'
4198
!

TYPE OF TAX: U. S. INDIVIDUAL INCOME TAX RETURN

FORM: 1040 TAX PERIOD: DEC 1983
DATE

EXPLANATION OF TRANSACTION

-- - ---- - - - ----- - ----- -- ----- --- - --------- - - - - - - - - ------ -- -- -- - --- - - ADJUSTED GROSS INCOME

ASSESSMENT, OTHER DEBITS (REVERSAL)

CREDIT (REVERSAL)

PAYMENT,

DATE (23C, RAC 006 ) - - - - -- -- -

ASSESSMENT

--

66,513.00

TAXABLE INCOME

50,932.00

04-15-1984 RETURN FILED & TAX ASSESSED 28211-105-44682-4 198418
04-15-1984 WITHHOLDING & EXCESS FICA
05-14-1984 REFUND

3,705.00
4,990. 0
(1,285. 0)

05-14-1984

08-16-1989 ADVANCE PAYMENT OF DEF ICIENCY

12,121. 0

08-18-1990 RECEIVED POA/TIA
08-02- 1996 REMOVED POA/TIA

08-16-1989 CORRECTION OF ADVANCED PAYMENT OF DEF ICIENCY

(12,121. 0)

1040 198612 _9326
20031108

RESTRICTED INTEREST ASSESSED

57,475.04

03-24-2003 03-24-2003

ADDITIONAL TAX ASSESSED BY EXAMINATION AUDIT DEF ICIENCY AFTER 30 OR 60 DAY LETTER 19247-465-08022-3 20031108
03-24-2003 RENUMBERED RETURN
19247-465- 08022- 3

8,620.00

03-11-2003 ADVANCE PAYMENT OF DEF ICIENCY

8,620. 0
PAGE

FORM 4340 (REV. 01-2002)

i

B-8

-------------------------------------------------------------------------------THOMAS HERBERT & EVEL YN MCGANN

Case 1:05-cv-01189-CFL Document 13-3 Filed 08/17/2006 Page 9 of 31 CERT IF I CA TE OF ASSESSMENTS , PAYMENTS, AND OTHER SPECIF lED MATTERS

EIN/SSN: .9326

4198

FORM: 1040 TAX PERIOD: DEC 1983
DATE

TYPE OF TAX: U.S. INDIVIDUAL INCOME TAX RETURN

EXPLANATION OF TRANSACTION

ASSESSMENT, OTHER DEBITS (REVERSAL)

PAYMENT,
CREDI T

(REVERSAL)

DATE (23C, RAC 006 )

ASSESSMENT

04-17-2003 RECEIVED POA/TIA
RESTR I CTED INTEREST ASSESSED

276.21
o .00

05-12-2003

20031808

ADDITIONAL TAX ASSESSED 28254-514-05015-3 20031808
04-14-2003 SUBSEQUENT PAYMENT

05-12-2003

04-21-2003 SUBSEQUENT PAYMENT MISCELLANEOUS PAYMENT
04-14- 20 0 3 AMENDED RETURN F I LED

17,312.7 40,162.2

07277- 532- 0 0 979- 3

05-12- 20 0 3 OVERPA ID CREDIT APPL I ED

1040 200212

276.2

09-30-2003 UPDATED POA/TIA

ADDITIONAL TAX ASSESSED 07254-531-07270-4 20042008

o .00
PAGE

05-31-2004

FORM 4340 (REV. 01-2002)

2

B-9

Case 1:05-cv-01189-CFL

Document 13-3

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Page 10 of 31
!

--- --- - -CERT IF ICA - --- ---- -- - ---- -- - - PAYMENTS, AND-OTHER SPECI - - - ~MATTERS - - - - - -- ------- - - TE OF ASSESSMENTS , --- - - ------- --- - - ----- - - - F lED - - - - - THOMAS HERBERT & EVELYN MCGANN

EIN/SSN: "-9326

- 4198

FORM: 1040 TAX PERIOD: DEC 1983
DATE

TYPE OF TAX: U. S. INDIVIDUAL INCOME TAX RETURN

EXPLANATION OF TRANSACTION

- --- -- - - - ------- - -- -- - ------ ----- - - - ----ADDITIONAL TAX ASSESSED 19254-745-05029-4 20045108
12-16-2005 LEGAL SUIT PENDING

ASSESSMENT, PAYMENT, OTHER DEBITS CRED I T (REVERSAL) (REVERSAL) - ----------- - ---- -- - - - - - - -

-

DATE (23C, - -RAC 006 - - - -- - )

ASSESSMENT

--

o .00

01-03-2005

03-24-2003 Statutory Notice of Balance Due
04-28-2003 Notice of Balance Due
05- 12-2003 Statutory Notice of Balance Due

FORM 4340 (REV. 01-2002)

PAGE

3

B - 10

-------------------------------------------------------------------------------THOMAS HERBERT & EVEL YN MCGANN

Case 1:05-cv-01189-CFL Document 13-3 Filed 08/17/2006 Page 11 of 31 CERTIFICATE OF ASSESSMENTS, PAYMENTS, AND OTHER SPECIFIED MATTERS

EIN/SSN: _9326

4198

TYPE OF TAX: U.S. INDIVIDUAL INCOME TAX RETURN

FORM: 1040 TAX PERIOD: DEC 1983
BALANCE

- ------- - --- - ---- - - --- -- - - --- ----- -- - -------------- ----- -- ---- --- - - - - - --- --- - -o .00

---- - - --------- --- ------ ------- - - ---- - - - - - -- - - - - - - - - - - ---- - - - -- - --I CERTIFY THAT THE FOREGOING TRANSCRIPT OF THE TAXPAYER NAMED ABOVE IN RESPECT TO THE TAXES SPECIFIED IS A TRUE AND COMPLETE TRANSCRIPT FOR THE PE IOD STATED, AND ALL ASSESSMENTS, ABATEMENTS, CREDITS, REFUNDS, AND ADVANCE OR U IDENTIFIED PAYMENTS, AND THE ASSESSED BALANCE RELATING THERETO, AS DISCLOSED B THE RECORDS OF THIS OFF ICE AS OF THE ACCOU ST TUS DATE ARE SHOWN THER

FURTHER CERTIFY THAT THE OTHER SPECII:'/ ED MA ERrSET FORTH IN THIS APPEAR IN THE OFF IC IAL RECORDS OF THE IN E /~ ENUE SE ICE.

,/ _ _ _ _ _ _ _ _ _ r_ _ _ _ _ _ _ _ _ _ _

/// i

RANSCR I PT

IN. I

SIGNATURE OF CERTIFYING OFFICER:
PAUL L. CZARECKI

"

PRINT NAME:

TITLE:

ACCOUNTING CONTROL/SERVICES OPERATION MANAGER
11

DELEGATION ORDER:

LOCATION: INTERNAL REVENUE SERVICE ACCOUNT STATUS DATE 05/02/2006

FORM 4340 (REV. 01-2002)

PAGE

4

B -11

MAY-03-2006 WED 04: 04 PM OFF I CE OF CHF CNSL HOUST

Case 1:05-cv-01189-CFL

Document 13-3
...,....,=.

FAX NO.

p, 02

Filed 08/17/2006

Page 12 of 31

, I....,
i

UNITED STATES TAX COURT
j-=q~~.z:-._':,7~:.l-;:~~~~.--..11 ¡ ¡-;~: oO::'/C'I;_/ -co .

t VULC.O-IL ~EC~--- )

.PAR j i.~ ~.) .--ENebOy-~-tN£ j )
.0 r T l TECHNQL--R1.NER'~. ) 1DILLON OIL TECHNOLOGY )
PARTNERS j ~DERRIIv:nF.R-GI'¡... )

~L_ ri-r~-

" u ¡! ,.1
LH

" " -, U: \.!- ,'-,:, , fi'._, ;:.:' ~

____ i

.'

i .

L~~~.~~~.:';,_~-".,~: :

~'L~Y- j
vs.
..,."".. ..'

~CHNG-Y )?APTNERS -1-~i' ) ~DERRINGER OIL TECHNOLOGY )
PARTNERS /1982 i 1CROWNE OIL )

DOCKET NO.

I i

TECHNOLOGY PARTNERS: and )

~1530+':7

..R!E.R.,_i..~..- ti((lU (' i \_a.J\ trU' 0, l.
)
)

e.~..n:.(,~ Petitioners, . )1p0l+~ ::Gc.~ 1 iÄ'i ffa...;'\.~-i-lV
)

COMMISSIONER OF INTERNAL REVENUE SERVICE,

)
) ) )

POSTMARK DATE
POSTMETER DATE
¡-AND.. DELIVERED

Respondent.

PETITION

Partnership items and a redetermination of the deficienc' es set
follows:

The Peti tioners hereby Peti tion for a readjustment of the

forth by the Commissioner of Internal Revenue in th Final

l?artnership Administrative Adjustments, copies of wh' ch are

attached hereto, and as the basis of their case al ege as
1. The Petitioners are:
TAXPAYER

-~--'

NAME AND ADDRESS

IDENTIFYING NUMBER

PLACE F ¡LED

VULCAN OIL TECHNOLOGY
PARTNERS

84-08S8746~

c/o American Energy
Resources, Inc., T. M. P.
.

Ogden, Utah
~. .:1

1360 Sunset Cli ffs Boulevard San Diego, California 92107

VANGUARD OIL TECHNOLOGY
PARTNERS

84-08S82W

" 'I
."
,n

c/o American Energy
Resources, Inc., T.M.P.

o~~~n" \, Ut.ah' . "
" ,-,
....)

San Diego, California 92107

1360 Sunset Cl i f fs Boulevard

z

.;

EXHIBIT
4
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MAY-03-2006 WED 04: 04 PM OFF ICE OF CHF CNSL HOUST

Case 1:05-cv-01189-CFL

Document 13-3

FAX NO,

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Page 13 of 31
i i !

DRAE OIL TECHNOLOGY PARTNERS

C/O American Energy
Resources, Inc., T. M. P.
1360 Sunset Cii ffs Boulevard San Diego, Cali fornia 92107

84-0856~.
84-086276~'

OgdeJ,
Utah'r

DILLON OIL TECHNOLOGY /' PARTNERS

~i./ o,
I

c/o American Energy

U'tah I

Resources, Inc., T.M.P.. 1360 Sunset Cli ffs Boulevard San Diego, Cal i fornia 92107

i , ,

DERRINGER OIL TECHNOLOG~
PARTNERS - 1981

84-086276~.

c/o American Energy
Resources, Inc., T.M.P. 1360 Sunset Cliffs Boulevard San Diego, California 92107

Utah ~

ogde11'~ /..

DERRINGER OIL TECHNOL~

84-0891 ~.~.~¿///

~/
I i i i i I i i I !

----,.

P AR'lNERS - 1982

c/o American Energy
Resources, Inc., T.M.P. 1360 Sunset Cliffs Boulevard San Diego, California 92107

CROWNE OIL TECHNOLOGY ~
PARTNERS

84-?l~
84-092877~-.

c/o American Energy
Resources, Inc., T.M.P. 1360 Sunset Cliffs Boulevard San Diego, California 972107

CARLTON OIL TECHNOLOGY PARTNERS, LTD.

c/o American Energy
Resources, Inc. f T.M.P.
1360 Sunset Cliffs Boulevard San Diego, California 92107

--../

Adjustments and the Notices of Deficiency were ma led as

2. The Not ices of Final Par tner sh ip Admi ni s ra ti ve
, ,

follows:

NAME

DATE MAILED

VULCAN OIL TECHNOLOGY
PARTNERS
VANGUARD OIL TECHNOLOGY

March 3D,

1987~

March 30,

PARTNERS

198~

~r0
Colo ado
ad

FROM ~ .

Denver, ~
Color

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DRAE OIL TECHNOLOGY PARTNERS April 6, 1987'/'
DILLON OIL TECHNOLOGY
PARTNERS

April 15,
March 30,
March 30,
Apr i 1 15,

19~
198~-.

DERRINGER OIL TECHNOLOGY PARTNERS - 1981 DERRINGER OIL TECHNOLOGY PARTNERS - 1982

CROWNE OIL TECHNOLOGY
PARTNERS

l~

i98~/
g~l~f~
i I

CARLTON OIL TECHNOLOGY PARTNERS, LTD.

March 30. 19¿

~~.

Commissioner are:

3. The Final Partnership Administrative AdjUstmentr by the

Partnership/ Tax Administrative Amount in I

Petitioner Year Adjustment Dispute I Penalty

VULCAN OIL 12/31/83 S 6, 798, 19~. S 6,798, 19r *
VANGUARD OIL 12/31/83 $ 4, 114, 55~$ 4, 114, 55~ *

DRAE OIL 12/31/83 $23, 198, 10~23, 198, 10 *
DILLON OIL 12/31/83 $17, 419, 61~~17, 419, 61 '*
DERRINGER OIL-198l 12/31/83 $ 2,961,63V S 2,961,63 *
DERRINGER OIL-1982 12/31/83 SI0,233,40~ S10,233,40¡ *
'-....

~... I

CROWNE 12/31/83 S 7,606143~ S 7,606,43 * CARLTON 12/31/83 $ 1.l56181~ S 1,156,81 '*
.Penalties:
To be determined under I.R.C. secti*ns 6621

(over-valuation), and ) (subs underpaymen t6661 . i antial
4. The determination of taxes set forth in saikl Final
I

(Ta~ Motivated Transactions): 6659

Partnership Administrative Adjustment is based on the f~1~owing errors for each joint peti tioner i each involving commo9 i S Sue s of fact and of law: I

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(As to the Petitioner Partnerships)

A. In determining the tax liability, the Commissi ner has

pe ti t ioners by disallowing a par tnersh ip 1 S5 from

erroneously increased taxable income of the
and arbi trary conclusion that:

Dillon oil Technology Partners ("Dileonll or IIPartnership") based on the Commissioner's roneous
(1) Petitioners failed to establish t at the
expendi tures occurred in fact or in su stance ¡

underlying events, transacti ns and

(2) The claimed losses, deductions and tax credits
did not originate in a trade Or busine s or in

a transaction entered into for profi t ~

(3) The notes executed by Petitioners in avor of
the Partnership are non-recourse, con ingent, speculative and lacking in economic su stance¡
(4 )
...._._.

Petitioners were not at risk wit in the
meaning of IRe Sec. 465 for any am
excess of those actually paid in cas
to the

unts in

Partnership, and thus said losses
excess of Petitioners' adjusted basis.

are in

(5) The claimed losses and deduct ions mat.er ially

distorted income and: I

(6 )

The stated price of the technology lie nse and

are unallowable because they der i ve from expendi tures Wh~ ch:

economic reali ty. Furthermore, the claimed losses, deductions and taxi credi ts

the various extraction rights exc ed the actual cast to the Partnership fo those items. Thus, losses and deductions based thereon are disallowed since th y lack

(7) Were incurred prior to the commencemen~ of any

business activity; r

(8 )

Do not quali fy as ordinary and nercessary

business expenses of the Partner hip or
Were not properly accrued by the Partn rship¡

expenses incurred production by the. partnershipIfor the of income;
(9 )

(10 )

Were not incurred by the Partner hip in

connection wi th the purpose designate by the

Partnership;

(11) Were capital in nature.

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P. 06

In addi tion,

i t has not been shown: i
property which could be licensed i I

. I

i I i

(12 )

purportedly licensed a technology p rt fol io

That the enti ty from which the par,nership
(Elektra or Hemisphere) had any rights to such

(13 )

What the fair market vaiue of the p rported
technology license is, and tha t the p rported

partnership, did not unreasonably ed the
fair market value of such license ~

(stated) price of the license to the

(14 )

What the fair market value of the ex raction rights to the Monroe Gas Fields is, nd that
extraction rights to the Partnership, did not

the purported (stated) price of such

unreasonably exceed the fair market lue of

such rights rand

(15 )

That the Partnership had any rights
that the purported (stated) price
extraction rights did not unreasonabl the fair market value thereof.

extraction of the Wyoming-Utah tar sa the fair market value of such rights, if ny ¡ and

the

f such

exceed

i I

(16 )

License fees claimed by the partnerShit do not

qualify as résearch and experi ental
expenditures under I.R.C. Sec. 174.
I

claimed

In addition, with respect to advanced minimum rdyalties
by the Partnership, it has not been established: I
(i 7 )

That the amounts claimed were paid or

I

with respect to oil, gas, or other
products which were sold in the same y
..'-

accrued mineral

(is)

That alleged payments consti tute SUDst ntially uniform royalties to be paid over the life of

provisions of I.R.C. Sec. 612 a d the
regulations thereunder, andr

the lease or otherwise qualify un er the

(19 )

That the amounts claimed do not conbtitute
capi tal expendi tures r therefore, r

(a) The Commissioner erroneously ditiiowed

the petitioners. share f the
Partnership deduct ion for Licens Fees.

(b) The Commissioner erroneously disallowed

Fees.

the petitioners' share qf the Partnership deduct ion for Con,ui t ing

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i ! !

(c)
(d)

The Commissioner erroneously d~saiiowed

the petitioners' share of the
Partnership deduction for Lega Fees.

The Commissioner erroneously d~saiiowed

Organization Costs. !
(e)

the peti tioners' share of the Partnersh ip deduc t ion for Amort iz t ion of

The Commissioner erroneously d' sallowed the petitioners' share of the
Partnership deduction for Gu ranteed
Payment made to the General Pa tner.

B. In determining the tax liability, the Commiss 'oner has

erroneously proposed an addition to tax un er Code
Section 6621 (c), 6659 and 6661.

C. As affirmative Defense the Petitioners assert the
allegations of Respondent amount to allega ions of

fraud and are scandalous and therefore, the
\

'- -

untainted evidence. I
5. The facts upon which petitioners rely as the

Rules of the United States Tax Court, the urden of going forward on all such issues must be shifted to the Respondent and it should be limi ted th rein to

basis of

this proceeding are as follows:

A.

Each Oil Technology Partnership (the "Part ership")
was organized as a limited partnership under the laws of Pennsylvania to acquire producing wells nd their adjoining properties, and to improve production from those properties by applying enhanced oil rec very and
advanced product ion technologies.

B.

In 1983. each partnership consisted of IvalidlY
notes to capitalize the entity. !
subscribed partners who contributed cash and at risk

i I

c.
D.

That the partners paid substantial amountJ to the

negotiable promissory notes. !

Par t n e r s hip d u r i n g 1 98 3 and e x e cut e d lva r i 0 U s
That during 1983.. the partners assumed uncojdi tional

liability to the extent of S56,250 per uni of the Partnershipls liability to Hemisphere L censing
Corporation ("Hemisphere"), or assigns.
i !

E.

In 1983, the Partnerships investigated and w1rked the primary and secondary oil and gas recovery otentia1

of a 60 acre tract ("Propertiesli) ßubjec to the leasehold working interest held by Tulesbond, Ltd. ("Tulsebond") in the E. o. Gregory lease covering
1,126 acres in the Parker Township, Butler County,
Pennsylvania and other similar valuable properties.

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P. 08

I i

F.

Corporation ("Lewin Energy") to conduct a ge logical

In 1983, the Partnerships employed LeWin1Energy
investigation of the Properties. The geo ogical investigation resulted in Lewin Energy re orting sufficient oil and gas reserves for pro itable operations on partnership properties. !

G.

In 1983, the Partnerships retained legal cotsei to render a ti tle opinion of Tul sebond i S Ie sehold working interest in the Properties and perfo mother reasonable and necessary legal services. ii
I

H.

In 1983, the Partnerships retained Lewin E prepare. a financial analysis report based

investigation of reserves on the Propert ies.
flow projection based upon assumptions and pro 'ections
industry experts.

Energy's report indicated a favorable prof it nd cash

used by the U. S. Department of Energy and 0 her oi 1

I.
",__-i'~'

In 1982, the Partnerships, relying on furnished by oil industry experts, acqui
operating rights on the Properties held by Tu

Tulsebond conveyed a 100% working interest to the Partnership, subject to the landowner's royalty interest of 12.5% and a 6.25% overriding royalty
interest to Tulsebond. Dur,ing 1983 these part erships

owned and operated over 100 producing oil ¡and gas wells. The price of oil fell dramatically II so many

J.

wells were capped and preserved for future exploitation and O.E.R. operations. . In 1982, the Partnerships retained Te hnica1
Enterprises. Inc. ("Operator") wells on the Properties, make and plug dry holes and provide the Properties, which activi ty

to manage the xisting tests for futu e wells general mainte ance of continued throu h 1983.

K.
..__._...

i e sand to advise the Partnership of the resea ch and development of enhanced oil recovery "EOR" )
technologies and processes.

In 1982, the Partnerships retained Petroleum S Inc. to manage oil and gas production facili

iences,

L.

In 1982, the Partnerships retained Nor
Corporation to locate additional target field

conduct negotiations on behalf of the Partners ip once a target field was identified.

to contain sufficient petroleum reserves

hbrook likely and to

M. In 1982, the Partnerships retained Tee nology Catalysts, Inc. ("Technologyll) to con uct an investigation of EOR and other oil and gas technologies and processes held by Hemisphere

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Licensing Corporation ("Hemispherell). Tech ology's

findings reported that Hemisphere offe ed the
Partnership the best opportunity in the Unite States

to obtain rights to advance oil and gas ecovery
technologies. Amounts paid by the partnersh' ps were

equivalent to fair market value for prope ty and
services received.

N.

In i 983, the Partnerships retained legal co~nsei to
render an opinion as to the scope of rights in certain inventions and patents he~d only by Hemisphere
i

Q.

On December 31, 1982, after considerable arm -length

negotiations and based on the favorable re rta of Technology (See M) and legal counsel (See ), the

with Hemisphere to obtain the rights to se all

(IlTechnologiesll) held by Hemisphere. The paym nts are annual and are reasonable in amount and the
Partnerships in fact used consultation and a4vice in 1983 derived from the contract relationship. I
.',--.-./"
i

Partnerships entered into an agreement (ilL' cense" ) current and future inventions and p tents

P.

On December 31, 1983, in consideration for the and for research and experimentation, the Part paid Hemisphere substantial fees per contract annual right to use the Technologies. The Par

License erships for the nership

paid some cash and executed a negotiable ecourse
promissory note ("Note"). The Note is due on ecember

partner notes were delivered for payment. i
Q.

31, 2006 and bears interest at 10% per an urn and

Hemisphere does not possess ei ther a capi tal tn terest

or a n~t prof i ts interest in the Partnership and the

notes are at risk in nature. ,
Prior to 1983, the Partnerships paid or~ 1

i i cUr

R.
',-_.-

organi~ation costs to which the Partnerships elected to amortize over sixty months pursuant to See ion 709

red

of the Internal Revenue Code of 1954, as mended, (IlCode"). Therefore, the Partnership p operly

reported amortization expense. :

s.
T.

Prior to 1983, the Partnerships paid Or ircurred
syndication costs which were properly capitali¡ed.
In 1983, the Partnerships paid or incurred co~sUl t ing

I

fees in connection wi th the ordinary and operation of the businesses.n~cessary !
!

u.

In 1983, the Partnerships pa id or incurred leJal fees for legal services not rendered in the syndic~tion or organization of the Partnership.

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I i

v.
w.

guaranteed payments to the General Partner.

In 1983, the Partnerships paid or incurred tertain
In 1983, each Partnership paid accounting fees I to the
firm of Peat, Marwick and Mitchell, C.P.AI.' for

preparation of tax returns and financial statem~nts.

WHEREFORE, Partnership/Petitioners pray that the Co rt may hear this proceeding, decide and order that no defici ncy in

income tax and additions to tax is due and owin from

peti tioners, read just the Final Partnership Adminis rat i ve Adjustments at the partnership level, shift the burden 0 going

forward wi th untainted evidence to the Respondent, an grant
such other and further relief as the Court may deem propef.

Respect fully submi t ted,
~
......-...'

o DONNELL, NO. 4412 Attorney for Partnership/Petiti ners 6841 South Yosemi te Street Englewood, Colorado 80112 (303) 721-1177

....~ -"",

B - 20

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Case 1:05-cv-01189-CFL

,,'

internai Revenue iervice

e

Document 13-3

FAX NO.

p, 11

Filed 08/17/2006

Department of the ~reasury

OOU153175
O.te: APR 0 6 1987

e. i i

Page 21 of 31

I

i i i

N.~ of ".rte,.hlp: Drare Oil Tee
TUPlyer Identlfyln, Numtr;84-08568
Tn Veu E:nde: necetber 31. 19 3

, e-

American Energy Resources, Inc. TM
Drake Oil Technology 2485 Grant Avenue Suite 300

Data FPM Mailed to Tn I

Mette,. Partner: I
i i i

"l"n to Col1ac;: E. wiistaad
Coni.d Telephone -r 844-5934
i ,

Ogden, Utah 84401

We have determined that there are adjustments to the partnership retuf as sho~n on the attached schedule of adjustments. Form 870-P. Settlement Agree ent to~ Pa~tnershlP. Adjustments. This letter is the notice of Final Partnersht Administrative Adjustment (FPAA).

. ,

NOTICE OF FINAL PARTNERSHIP ADMINISTRATIVE ADJUSTMENT i

It you want to enter into a binding set ilement to treat partnership 1 t
consistently with the treatment of the items on the partnership return as m 'return the enclosed Form 870-P. If the Co~lss1oner a by the FPAA. sign and your offer of settlement. the t~eatment of partnership items under the sett will be bindlng and will not be affected by' any late~ judicial determ1natio .
If you are the tax matters partner (the partnership representative who ~ith' IRS) and want to contest these adjustments in cou~t. you have 90 days the date this letter was ~ailed to tile a petition tor a'readjustment ot th partnerShip 1 tems with the Un1 ted States Tax Court. the Uni ted States Claim Court, or the District Court of the Un! ted States for the district in which the of business is located. During this 90-day pe 1~d. partnership' 5 pl'incipal place no other partner may tile a petition for judioial review, and the tiling ot a

peti tion by the tax matters partner precludes all other actions.

have an interest of 5 percent or mo~e in the proti ts of the partnership (5- ercent
group 1) may pet! tion one or these courts after the 90th day. but on ar beto e the 150th day. trom the date the FPAA was mailed to the tax matters partner. On y one petition to the court 1s allowed. It more than one petition is tiled. t e fi rst petition filed in the Tax Court will go forward. All other pet! tions even those filed earlier) will be dismissed. It no petition is filed in the Tax ourt. the first petition filed in one or the other courts will go forward and sub equent petitions will be dIsmissed.
Pet! t!ons tiled wi th the United States Tax Cou~t must be mailed to 400 SÇc~n¿ Street, N,W., Washington, P.C. 20717. Attach 8 copy of this letter to th~ petition. The time in which you ~ust file 8 petition with the court is fixed by
(ovtri

,It the tax ~atters partner has NOr tiled a p~tltlon by the 90th day tr 1% the date the FPAA was mailed, any other pa~tner entitled to receive this not1ce under s~ction 6223 or the Internal Revenue Code (or any group of partners who tog ther

B - 21

(

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. f i i i petition.
.

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Page 22 of 31

p, 12

~~~ and \be court canot ~S1dor your case it your Pot1t1t1IB tiled late~ If

this letter 1s a~4ress8d to both a husbad end wire, end both w~t to pei1~Jon the tax Court, both must Sign the petition or each ~st tile a separate, 5~sned

As a coudition to f11ing a petition 1n e1ther the appropriate Distrlc or tho Claims Oourt, the partner tiling the petition (1nclu41DS each .embo 5-percent group .hleh tiles a petition) øust deposit with the Intornl Reve Service, on or betore the day the petition 1$ tIled, the amount by which t partner'ø tax liability WOUld be increased it the treatment ot partnership items on the partner's return were made oonsistent with the treatment at partners lp

items under the rPAA. It you reported partnership items the way tho partDe bip

retiguring youI' tax. ..

reported them Ob 1 ts return, you can senerally determine the ~OUDt to depo 1 t by taking your pro-rata share ot the partnerShip's adjustments lnto account in

", "---" i i more intormation. ! , i
"i
area, there w111 be a long-distance charge to you. .
T.nk you tor your cooperation.
Sincerely yours,

It no J'eadjustment pet! t10n Is tiled in any ot the courts listed on th or this letter. thIs FPAA beçomes b1ndlns and you will be billed tor any ad tax that yoU may owe under the FPAA. You wIll not be permitted to contest t treatment ot partn~rsh1p items under the FPAA in any retund claim or suit. permi ts us to bill you atter 150 days from the mailing date ot the FPAA to tax matters partner. Howevert it a petition 1s tiled in the rax Court. you not be billed untll the fax Court decision is tlnal.

It yoU have" any Questions about this matter, please write to the persot whose name aDd address are shown on this letter. It YOU wrlte. attach thIs letteJ' to help identity your account. Keep the çopy tor your records. Also 1nclude yo r telephone number and the most convenient tlme tor us to call yoU in case we need

It yoU preter, you may call the IRS contact person at the telephone n1beishown in the heading at this letter. It the numbe%' ls outside your local ea ling

, You may call the IRS telephone n~ber listed in you~ local dìrectory. 1n IRS employee there may be able to help you, but the oontact person at ~he addre~ shown on this letter is ~ost tamiliar witb your case.

La~rence B. Gibbs

COlllSS10ner

b~/~
(.;.
I !

Enclosures:
Fonr 870-P Copy or this letter

G. L. M1hlbachler District Director

B - 22

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P. 13

~

I

..

.

.-

.

'IV _ Of
o.'~l of n. Tr.ewry-l"'eni.' fl~", s.'~

- l-

F O"fT 48.A IA." .lly '181
N. trc AdClr.u

Ex.minlton Chl~. . hrtrwlhips, FiducWril, Small Bulin., Corpo Dom_Ìç lni.NlÎOnIl SlI.i Corporl'ions
£:rrplov'" IØtnlifQIlOI' N¡¡~'

MÌDnl, and
form Numbr
i i

Dr el ke

Oil Technology Partners
Sunse t

1360
. San

Cliffs Blvd.
92107

84-0856853
f'erlO'l E ".m'..i.on

"'.""e
'Tit,e

1065

Diego,

C'A

Ctl.~

! !

Welt! 0.,.

c:uRe W,th

I

1.

Ad,Uli""'J 10 Ord,n.'v. Ølltrlbullble net. or 1tiibll! inc

'rear

1983

Vii'

V..r

.
b
(:,

Deductions

23,198,105

i

d
,

e.
f,
sa I ,

2. Toii' -iiustme,ns 10 Otrlin,ry, d-tTltnlti-e ~~~_!:l: income
3. 0'12,,,, v' (tr...t:.r~.""~~ ir.~ ::"'l!..~ repo'1ec

23,19 B, 105

I

(19,698,934)

...

Corrkt" Otdif'.... m~.,~.r~,:~-~' 'l'tome.

3,499,171
t
,
i

~ OIO)e' Id:u~l""t"'~~'
a

-

See Attached

r
11; AQ;u~:i'-¡i
I

12 A: 'epO'Ie-

I I

13 Co"e:I~
t:

I

i 1) A:.Ll5'!",1f'~.

I

12 J.i' e;i:ni'

13. C;:''l!UiC
I

Rr-r.a-. ~
I i

la¡i..~~..;;-,òi..'e

_.:... c. ;-.... ","/_ _..

~/
"' -

"

. ..

./

.'

Da\t
.d

-"'

IO'SII'CIOfliee

r.¡

d

/ -

.. . ~ - ~ .J-l

~h,,, "~..4
B - 23

fA

" '.A\

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.

Case 1:05-cv-01189-CFL

Document 13-3

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Page 24 of 31

P. 14

Drake 01 i Technology Partners

1983-1865
Other Adjustments

..

Uel' 5a. Net lnveabient (lose)

ftz Reported Corrected
Jte~ 5b. Net Eern1nga (loia)
FrOM Sei f-o~ploy~ent

AdJuatl'ent

Tex Preference Jte~
S 1 9 ,50\ ,945 (S 1 S .501 ,945) 'O

l\dju~tl"erit
A6 Reported

1164,070
(17 ,720 ) 1156 .350

Corrected
,

Iie~ Sc. 8a&i$ of New Recovery Property Eligible for lTC-Other (48q)

Adjuliliient
Aa Reported

Corrected
ite~ Sd. ee5is of U~ed Recovery Property Eligible for lTC-Other (48Q)

13.272 $3.272
10

fis Reported Corrected

Adjuz¡bient

1107,083
SI117,083 10

Itel' 5e. Co,t Depletion
Ai:jlJ!5tiient

1152,941
11 52 ,94 1

Ali Reporhd

Corrected

10

IteM 5f, 011 & 6a~ Depletion to

Extent of Bi!fds
Adj u~t~ent Ais Reported
1152,94 i

Corrected

S152,941
10

B - 24

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Page 25 of 31

p, 15

Fotm 810.P
(Rev. Februiry 19861

Olpirtmini of ihi Tnuury - inwrn-l AlVinul S.rvlc:i

Settlement Agreement for Partnenhip Adjustents
(Under IRe 6224) Social .curÎt or Iimplo~lr ¡dent ¡Cltion numl:r

Nam85 iiiid iires of tlixplVlls (Numl.r, fttiC1fY or 1.1t, s..., zip cotl

American Energy Resources. nc. ~~
Drake Oil Technology Partners 2485 Gran~ Ave. Suite 300
'l!....L t u '-au ULf'-U.L

84-0856853
i I

Unc.the provOO ot MG a24Cc:1 of th lnurii "'.ww Co, tt. undlanld of," co intII into. ..nhimint Ig~Wltf ri-ec to t~__ mlon Of ~hlp ium of d'. -lipC.1 for the V-e.i tIwn on rt Imld lCecull of i4jYiimen. TIl undl~1C .l of.. 10 _i .
rw on ÚlI --t -i COLei of ..y dei- Cwlth In- . provid by 1..1 that WOUld '_It from nuklni t"l i-imant of par "'10 lt on ih rwm of .. ui-Ig conitm with eM iint of th_ It"' on th. plrtetip .-m with chi el Ie 1.11 of ed¡usien It:

1

Unl. ind UAtillt Ii iiçete, It will hllll no fOf or effec I
Slgnl,u.. of ;øxpeyll

Thli offer II IUbjec to Iccpunc for the Commi..lone of thi In-t R..nui Servic, It wil taki Iffll It. wi/viir of reWIcIO~ an thi ~t" it It lCtld
I

If thi5 offer Ie lCClted for thi Coilioer. thii tfiint of ØIn:riip Itiii under til, agreent wil not be rooMd In t~e abncll of friuc man
sinee, or misrlfnintllon of fac; and no claim for rafund or credit bllC on any c;ange In tie triitmint of plrtnh jp 1t8 may bel fll.d or prolluia:i
I

Dati 1
i I

Signltll re of tax pav.r

Dltll

8y:. (SllJlUrø end tJrle)

o.1.
i !

NOTE: Thellfltion and flllng of thla offr wni I"Pedlt the 8djunment of th81leblllt. I If thli offir IllIJUlcutlld wli ret 10 . yelr for which i JOINT RETURN OF A. HUSBND AND WIFE wa. flied It m~l1 be ilgned by both spou....
unl.. Onllapie,lIlng unChr a power of auornlI, iigna.. Iglt for the other.

riomplny tM form. ,
Oats lIP1ec for Commllloner

If thii tppiyer i. a corpr8.lon, the offer mùti be IIlned with the corporata Mmii followed by thi Ilgnature and title of thi 0 lee iiuthorlzld to Iin.

TIlIl offe l'y be I'lCuted bv the tljlyer'l attmav or iint prìd ir, acion II ipificaly autharlzlC by a prof attorney, wll ch miiit
¡

SlQnat "'

FOR INTERNAL REVENUE USE ONLY

Office

Tit,.

B - 25

Form 870- P IRev. 2"1

MAY-03-2006 WED 1:05-cv-01189-CFL CHF CNSL HOUST Case 04: 06 PM OFF ICE OF Document 13-3

FAX NO.

Filed 08/17/2006

Page 26 of 31

P. 16

Dipenmeni of 1h1 Trerv - in_nel R...nue fìlc

SETTLEMENT AGREEMENT FOR PARTNERSHIP ADJUSMENTS
SCHEDULE OF ADJUSTMENTS
...

TAX YEAR ENDeP

NAME OF PARTNER"" Dralte -OLL TechnoJ.ogy t'8Ttners

December.
31, 1983

TAX'AYER IDENTIFYING NUBER 84-0856853

DETAIL OF ADNT
TO ORDINARY INCOME:

1. Deductions

$ 23. 198 , 105
..

.

2. DISTRIBUTIVE SH. ITEMS:

a.

Net Investment Income (loss)-Tax Preference Item

Reported
Correc ted

S (19,501,945)
o S 19,501.945

Adjustment

b.

Net Earnings

froi
S(

Self-Employment
7. 120)

Reported Corrected Adjustment

$

156,350 164,070

c.

Basis of New RecoveTY Property Eligible for

Reported $
Carree ted

Investment Tax Credit
Adjustment: 's

3.272
o

3,272

d. Basis of Used Recovery Property Eligible for

Reported $ 107,083
e.

Investment ~ax Credit

Adjustment S 107,083
Reported
Corree ted

Corree ted 0
Oil and Gas Depletion and Cost

Depletion

$ 152,941

o

Adjustment

S 152,941

TOTAL ADJUSTMENTS to Ordinary InCOlDe

$23,198,105
Form 870.P (l~. 2-8
.i.- GD¥O'"_11l "i.UIi f)l_i "..-- ....~i...

B - 26

MAY-03-2006 WED 04: 06 PM OFF I CE OF CHF CNSL HOUST

Case 1:05-cv-01189-CFL

Document 13-3

FAX NO,

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Page 27 of 31

p, 17

i

Sc:hedü ,e 2
Explanation of Adjustments

5tøtetent

,i
198:31

Partnership Year Ended December 31, 1983
- -----_._--~------------- ---------- -~ ~---I

Drak~ Oi 1 Technology

I

1.

It is determined that the deductions, reported by , I
Dra.ke Oil Tet;hnology (A TEFRA Partnership) on its

partnership inc:ome t~x return in the amount of
$23.19~, 105.00 (See Exhibit A) ar~ disallowed for

the

following reasons:

(a) It has not been established that the underlyihg

f ac t or in substance; !
events. tr ~nsac t ions and e~pend i tures occurred' i n

(b)

It h~s not been established that the claimed deductions or iginated in a trade or business or ir a

transac t i on entered into for prof it;

I

(c)
(d)

It has not been established that the claimed deductions do not materially distort income;

I i I

It has not been e$tablished that the stated pric:e~ of the technology license and the va.rious extrac:tio~
rights do not ex~e~d the actual cost to the i

partnership for those items. Thus, the dedu~tio~s ba~ed thereon are disallowed sinc~ it has not be~n

established that they have economic reality. I

(e)

It has not been established that

the notes exeCU~,~d

by the partners in Tavor of the part~ership are reCourse, are not contingent, are not speculativ

and have economic substance.

Furthermore. the c:laimed deduc:tions

are not al low~d I

i i I

from e~pendítuíes which:
( a)

because it h~s not been established that they were de1ived

activity; I
partnerShip Tor the production of income;

i I I

Were i nçurred after the commencement of a bwsine~s
I

( ti )

Qua 1 i fy as ord i nary and nec:essar Y bus i ness expen4es

of the par tnersh ip or expenses incurred by the :

i

(e) Wer~ properly ac:crued by the partnership;

(d) Were incurred by the partnership in connection the purpose designated by the ~artneíship; and with
eel Were not capital in natu~e.
B - 27

MAY-03-2006 WED 04: 06 PM OFF ICE OF CHF CNSL HOUST

Case 1:05-cv-01189-CFL

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FAX NO,

Filed 08/17/2006

Page 28 of 31

p, 18

,

SChedujE 2

5tatE'terit

¡

Exp 1 ~n~t i on of Ad justments
Dr ake Oil Tech~o lOQY

Partnership Year Ended December 31, 1983
_. -~-----_._------------ -- -----------------

1. (Contd)
I~ addition, it has ~ot been ~hown:

(a) That the entity from which the partnership

purportedly 1 iç~nsed a technology portfol ic had ary
rights to such property which could be licensed; I

(b)

What the fair mark~t value of the purported I technology 1 icense is. and that the purpo~ted pr iji:e I of the license to the partnership, did not i

unreasonab i y e~ceed the fa i r mar ket va 1 we of

suCh¡

lícense;

,c)

What the fair market value of the extraction rights to the Parker Field is, and that the purported price

rights. i
In addition, it has not been establi$hed that license ~iaimed by the partnership qu~l ify as res~arLh and

of such e)(traction rights to the par't~ership. did¡ not

unreasonab 1 y exceed the fa i r mar ket va 1 ue of suc~

I I

Ifees
i I i

exper i menta 1 expend i tur~~ under I ntei na 1 Revenue Code
Section 174.

Additionally. the deductions are not allowable bee: au sel they have not been adequately substantigted as
to amount or the ~a t ur~ of the dedwc t ion.
I I

Additionally, the deductions ~re disallowed bee:ause t,ere was no response received to requests to provide docum nts and other information to support the claimed deductioi s.

Se~ause of thi~, it could not be establ ished which i

deduct ions were proper or what the p,oper amounts of ~he
i I

deduc t ions shou 1 d be.

Furthermore, it has not been e~tabl jshed th~t thE part~ers were at risk within the meaninQ of Internal Revenue Co~e

See t ion 465 for any amounts i n ex~ess of those ac t ua 1 i ~
p~id in cash to the partnership. Thus it has nGt been i
of the par tners' ad justed bas ì s.

est ab 1 i shed that the par tner sh i p losses are no tin e~ce5S

B - 28

MAY-03-2006 WED 04: 06 PM OFF I CE OF CHF CNSL HOUST

Case 1:05-cv-01189-CFL

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FAX NO.

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Page 29 of 31

p, 19

.. .

s~~:*:n~
Par tnersh i p Ye~r Ended De~emoer 3 i, 1983
3.
Explanation of Adjustments D~rringer Oil Technoloqy PartneíS-1981

).
, ¡ .,. ! i I ¡

With respect to di§tributive share items it has be~n. determ i n~d for the reasons stated above in exp I anat iori i that:
( a)

-0-; !

net inve~tment income (loss) for tax preferen~eitem~, is
i

(bl depletion is -0-;
(c)

net earnings from self-~mploym~nt is s156,350~OOa§

recomputed without regard to any d i st r i but i ve share income or 105'5;

'. ¡

lf
i

(d) oasis of new and used recovery property e1 igible for!

investment tax credit is -0-. I

With respect to the di~tributive share item, oasis of newland used recovery property efigible for investment tax creditt in

addition to the explanation in 1 and 3 above, it was i

determí ned that the d istr ibut i ve share amounts are -0- be*ause
(a) that the property was inv~stm~nt credit property as defined in section 48 of the Internal Revenue Code;
(b) that the taxpayer had a basis in such property_

it has no t been estab i i shed; i

B - 29

MAY-03-2006 WED 04: 06 PM OFF I CE OF CHF CNSL HOUST

Case 1:05-cv-01189-CFL

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Page 30 of 31

p, 20

..

..
St.!tbment
Sc: hedl~ 1 e 2
I

Exp 1 an~t ion of Ad justments

Drake Oi i TeChnology Partnership Year Ended December 31 t 1983

i

I I i i

This Fin~l Partn~rship Administrative Adjustm~nt for the tax year ended December 31, 1983 does not reflect possible adjustments to Oil T~chnology Group-Illinois Basin Partnership, a TEFRA p~rtnership in which you were a partner in 1983. Oi 1 Technology Group-Illinois Basin Partnership is currently under e~amination pursuant to the TEFRA provi~ions of IRe section 6221 thru 1.
completion of the partnerShip e~amination.

You wi 1 i be informed of any ad j ustments to your 1983 retuí ns ter

B - 30

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Case 1:05-cv-01189-CFL

Document 13-3

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P. 21

., .
,\

EXHIBIT

SC~EDUlE OF DEDUCTIONS RE: DRAKE OIL TECHNOLOGY PARTNERS PARTNERSHIP TAX YEAR ENDED DËCEM8ER 31, 1983

AMOUNT

AMOUNT

Intere!t

expen!ie

PER RETURN I 3,401.521

PER EXAMINATION

ADJUSTMENT

.0

$ 3,401,521

Guaranteed peYMent 5

Lic:enile fee

156,350
i 8, i 55,000

0

156,350
1 8 . 1 55 ,000

AccountinQ
Abandonl¥ent Lega i 8. Other expen5eõ Con~u1t 1 ng
1Î1"0l't i :!at ion

22,310 579,558 25,483
704 , 060

54 ,465

Depreciat ion
Over-head

8,583

---------$23, i 98.105
:i=::_Ja1I:afi~=

. 90 ,775

0 0 0 ø 0 ø 0 0

22,310 579,558
2S ,483

704,060
54 .465

----------

B ,583 90 ,775

Total

$Ø

..

$23 . I 98 , 105 ::;:=::=-=-=::::::

B - 31