53 T.C.M. (CCH) 461
MICHAEL GILBERT AND SANDRA GILBERT, Petitioners
COMMISSIONER OF INTERNAL REVENUE, Respondent
United States Tax Court
March 26, 1987
Petitioner-husband was the sole limited partner of a limited partnership formed to purchase and exploit a made-for television movie musical entitled ‘ It's A Bird, It's A Plane . . . It's Superman.‘ The parties executed timely Consents and Special Consents to Extend the Time to Assess Tax, Forms 872 and 872-A, for petitioners' Federal income tax for each year in issue.
Held, the statute of limitations does not bar the assessment or collection of any deficiency determined, based upon agreements to extend the time for assessment. Sec. 6501(c)(4), I.R.C. 1954.
HELD FURTHER, the activities of the Partnership lack economic substance, and respondent has disallowed properly the deduction of petitioner-husband's distributive shares of partnership losses, deductions and investment credit. Rose v. Commissioner, 88 T.C. ___ (Feb. 5, 1987).
Richard B. Wallace, William H. Karo, and Theodore Brill, for the petitioners.
James W. Clark, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
STERRETT, CHIEF JUDGE:
Respondent determined, by notice of deficiency dated March 24, 1982, deficiencies in the Federal income taxes of petitioners Michael Gilbert and Sandra Gilbert for the taxable years ended December 31, 1975 through December 31, 1977, as follows:
Neither party has made any concessions in this case. The issues for decision are (1) whether the statute of limitations bars the assessment and collection of any of the determined deficiencies and (2) whether petitioners are entitled to deduct petitioner Michael Gilbert's distributive shares of partnership losses, depreciation deductions and investment credit arising from his involvement as a limited partner in a limited partnership. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulated facts and exhibits attached thereto are incorporated herein by this reference. Petitioners Michael Gilbert and Sandra Gilbert, husband and wife, resided in Miami Beach, Florida at the time they filed their petition in this case. Petitioners filed joint Federal income tax returns for each of the taxable years in issue, using the cash basis method of accounting, with the Internal Revenue Service Center in Chamblee, Georgia. At all relevant times, petitioner Michael Gilbert was a practicing psychiatrist and petitioner Sandra Gilbert was a housewife. Petitioners timely filed their 1975 Federal income tax return on October 15, 1976, pursuant to an extension of time to file such return. Petitioners, on August 31, 1979, and respondent, on September 17, 1979, executed a written agreement entitled Consent to Extend the Time to Assess Tax (Form 872), which extended the time to assess a deficiency in petitioners' 1975 Federal income tax until December 31, 1980. Petitioners, on June 23, 1980, and respondent, on July 16, l980, executed a second written agreement entitled Special Consent to Extend the Time to Assess Tax (Form 872-A), which extended indefinitely the period of assessment with respect to petitioners' 1975 taxable year. Petitioners filed their 1976 Federal income tax return on November 14, 1977. Petitioners, on August 20, 1980, and respondent, on September 10, 1980, executed a Form 872-A, which extended indefinitely the period of assessment with respect to petitioners' 1976 taxable year. Petitioners timely filed their 1977 Federal income tax return on October 15, 1978, pursuant to an extension of time to file such return. Petitioners, on February 18, 1981, and respondent, on February 21, 1981, executed a Form 872-A, which extended indefinitely the period of assessment with respect to petitioners' 1977 taxable year. On several occasions, petitioner Michael Gilbert (hereinafter petitioner) was presented with investment propositions, including the movie purchase here, by Lawrence C. Porter (Porter), petitioner's attorney and close friend. Prior to the years in issue, petitioner's investment ventures included interests in an apartment building, an orange grove, a cattle breeding farm and a mobile home park. Prior to February 1975, petitioner had no experience or training in television program distribution and Porter had no such formal training. On or about February 17, 1975, Porter and producer Norman Twain (the Seller), owner of Norman Twain Productions, discussed the proposed sale of the Seller's rights to a made-for-television movie entitled ‘ It's A Bird, It's A Plane . . . It's Superman‘ (the Movie). The Movie was adapted from the Broadway stage musical ‘ Superman‘ by Charles Strouse and Lee Adams based upon the comic strip character. Its cast included David Wilson as Superman, Loretta Swit, Leslie Warren, David Wayne and Allen Ludden. The sale of the Seller's rights to the Movie would be made expressly subject to an agreement (the license agreement) executed in 1974 between the Seller and the American Broadcasting Company television network (ABC). The license agreement granted to ABC the exclusive right to air two non-prime time network broadcasts of the Movie in the United States during the 18-month period from approximately January 14, 1975, that is, the date that the Seller had delivered the Movie to ABC, until July 15, 1976, for which ABC paid a license fee in the amount of $170,000. ABC also obtained the exclusive option to air one prime time broadcast of the Movie, which if exercised, for an additional license fee in the amount of $140,000, would extend the license agreement's term for an additional 6 months, until January 15, 1977. Porter received a personal and confidential memorandum (the memorandum), dated February 19, 1975, with respect to the Seller's proposed sale of the Movie. 
The memorandum stated the Movie's purchase price as $500,000, payable $100,000, or 20 percent, upon closing, with the $400,000 balance, or 80 percent, to be evidenced by a 10-year nonrecourse promissory note. It also stated that the Seller had represented the Movie's fair market value to be approximately $500,000. The memorandum described the terms of the Seller's license agreement with ABC. It stated that ABC had paid $170,000 to the Seller for the exclusive right to air the Movie twice during non-prime time and that the first of such broadcasts had been scheduled for February 21, 1975. The memorandum also stated that ABC had the option to broadcast the Movie once during prime time upon its payment of an additional license fee in the amount of $140,000. The memorandum projected total income in the amount of $220,000 to be derived from the Movie as follows:
| 2. Rights in Australia
| 3. TV rights in the rest of the
| (a) For the first year
During his discussions with the Seller, Porter was advised that if ABC were to exercise its option, $103,000 of the $140,000 option price would be paid to the Movie's authors, musicians, cast director and producer, and this fact also was stated in the memorandum. The memorandum also provided that the promissory note would be payable only out of the Movie's net tape proceeds, although its $400,000 principal amount would be reduced first by ABC's $170,000 license fee to the Seller. The note would be paid in accordance with the following percentages of net proceeds: (1) 50 percent of the first $50,000, (2) 20 percent of the next $100,000 and (3) 50 percent of additional net proceeds until the note is fully paid; the balance of the net proceeds would be retained by Superman Enterprises, Ltd., petitioner's newly formed partnership. The memorandum further provided that the proposed purchase of the Movie was attractive not only as an investment but because it offered favorable tax advantages. It estimated depreciation deductions for 1975 totaling $215,000. An investment credit in the amount of $35,000 also was projected. In February 1975, 
Porter formed a Florida limited partnership, Superman Enterprises, Ltd. (the Partnership), for a 23- year term to expire as of December 31, 1998. The Certificate of Limited Partnership (the certificate), filed with the Florida Department of State on February 19, 1975, stated that the Partnership's business was to distribute and lease a television color videotape entitled ‘ Superman.‘ 
The certificate provided that in the event of the death of the general partner, if the remaining partner(s) does not admit a new general partner, then the Partnership's business would discontinue and the Partnership would be terminated. 
On February 20, 1975, petitioner confirmed in writing his instructions to Porter to organize a limited partnership in which Porter was the general partner and petitioner eventually would become a limited partner. Petitioner also instructed Porter to cause the Partnership to execute a purchase agreement with the Seller in which the Partnership would ‘ acquire all of the right, title and interest in and to‘ the Movie. Porter was further instructed to cause the Partnership to execute a nonrecourse promissory note, in the amount of $400,000, payable to the Seller, and to deliver petitioner's capital contribution to the Partnership to the designated escrow agent, in accordance with the terms of the escrow agreement referred to therein. Also on February 20, 1975, the Partnership and the Seller executed an agreement (the purchase agreement) in which the Seller agreed to ‘ sell, convey,...