The opinion of the court was delivered by: CONLON
SUZANNE B. CONLON, UNITED STATES DISTRICT JUDGE
After hearing the testimony of the witnesses, reviewing the exhibits offered by both parties, and considering the arguments of counsel, the court enters the following findings of fact and conclusions of law, in compliance with Rule 52(a) of the Federal Rules of Civil Procedure.
1. Plaintiff Randall S. Goulding ("Goulding") is a United States citizen. Stipulation para. 42.
2. In 1971, Goulding graduated from the University of Illinois with a degree in accounting and finance. Id. at P1. He then joined the Chicago office of the Internal Revenue Service ("IRS") as a special agent. Id. at P3 Goulding remained at the IRS from 1971 through 1978. During this time he became a certified public accountant and obtained a law degree from DePaul University School of Law. Id. at PP4, 5. Goulding resigned from the IRS in 1978 to practice law. Id. at P6.
3. In 1979, Goulding and several other individuals formed three research and development limited partnerships: Mercon, Ltd. ("Mercon"), LaSala, Ltd. ("LaSala") and Jonquil, Ltd. ("Jonquil") (collectively, "the partnerships"). Id. at PP7, 17.
4. Each partnership consisted of a general partner and a group of investors known as limited partners. Id. at PP13, 14. The general partner in each instance was a corporation formed by Alex Pinsky ("Pinsky") and Zalmon Horn ("Horn"). Id. at P13. The limited partners were individual investors. Id. at P7.
5. The funds provided by the limited partners were used to acquire and to develop newly patented technologies. Id. at P25. The partnerships planned to profit by licensing their technologies to other investors. Id. at PP8, 25.
7. In addition to his role as legal counsel and investment advisor, Goulding prepared the partnerships' federal income tax returns. Id. at PP28, 29; Government Ex. H-M.
8. A partnership tax return is a document known as "Form 1065." Id. This form reports partnership gains or losses in a given taxable year. Id. Form 1065 contains two additional documents that detail the partnership's financial activity: a "Schedule K" that computes the partnership's profit or loss, and a "Schedule K-1" that allocates the partnership's profit or loss among the limited partners in proportion to their original investment.
Id. There is a Schedule K-1 for each limited partner. Id.
9. From 1979 through 1981, Goulding completed a Form 1065 for each partnership. Stipulation para. 35; Government Ex. H-M. On each return, Goulding signed his name in a space indicating that he was the partnership's "paid preparer." Id.
10. The partnerships made substantial investment expenditures in these years without receiving any income and incurred aggregate losses of $ 13,357,134. n2 Government Facts para. 13. The losses claimed by each partnership for the years 1979 through 1981 are as follows:
Partnership 1979 1980 1981
Mercon $ 1,631,040 $ 1,413,358 $ 1,409,754
LaSala 2,011,469 1,771,298 1,769,978
Jonquil 1,214,449 1,071,066 1,064,722
Totals: $ 4,856,958 $ 4,255,722 $ 4,244,454
11. Goulding computed these losses and allocated them among approximately 260 limited partners. Government Facts para. 13; Stipulation para. 35; Government Ex. H-M.
12. In each year that Goulding prepared a Form 1065, he received compensation from the partnerships. Stipulation para. 19. From 1979 through 1981, Goulding earned $ 250,000. Id. These earnings came from the partnerships' capital, that is, from funds originally supplied by the limited partners. Id.
13. Once Goulding completed a partnership return, he delivered the Schedule K-1's to the ...