Fargo

I. Facts

More than twenty years ago, Taxpayers bought interests in two partnerships: the Jackson & Associates Partnership (Jack- son), and the Smith & Asher Associates Partnership (Smith & 5144 FARGO v. COMMISSIONER OF INTERNAL REVENUE Asher). In 1983, Taxpayers claimed a loss of $30,767 attribut- able to their interest in Jackson; in 1984, they claimed a $2,749 loss from Jackson and a $28,996 loss from Smith & Asher. These partnerships were themselves partners in yet other partnerships (Wilshire West Associates and Redwood Associates, respectively), which in turn were associated with a series of tax shelters called the Swanton Coal Programs.1 All of the partnerships were subject to the Tax Equity and Fiscal Responsibility Act (TEFRA) provisions of 26 U.S.C. §§ 6221-6234.

The Swanton Coal Programs were exposed as purely tax- motivated transactions in Kelley v. Commissioner of Internal Revenue, 66 T.C.M. (CCH) 1132 (1993), with the Tax Court opining that the Programs were “nothing more than an elabo- rate scam to provide highly leveraged deductions for nonexis- tent expenses.” The Tax Court’s 1993 ruling in Kelley had an effect on Taxpayers’ liabilities for 1983 and 1984,…