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GOULDING v. UNITED STATES

April 17, 1989

RANDALL S. GOULDING, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant


Suzanne B. Conlon, United States District Judge.


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.

 FINDINGS OF FACT

 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.

 6. Goulding played an active role in the partnerships' affairs. He was legal counsel to the partnerships both prior to and during their operation. Id. at P16. He also invested the partnerships' capital. Id. at PP18, 20. Together with Pinsky, Horn and two other individuals, Norton Gold and Morris Ziegler (collectively, "the sponsors"), Goulding decided which patents to acquire. Id. Then he negotiated the purchase price and the terms of the purchase agreements. Id. Once the patents were acquired, Goulding and the other sponsors determined the amounts spent on research and development. Id. at P19.

 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. *fn1" 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: Tax Year 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

 Government Ex H-M.

 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 ...


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