Cudahy and Easterbrook, Circuit Judges, and Fairchild, Senior Circuit Judge.
FAIRCHILD, Senior Circuit Judge
The Adkins seek review of a Tax Court decision determining a deficiency in income tax for 1979. The court disallowed $20,000 in deductions and determined that $16,000 additional income should have been reported. The decision is reported as Gray v. Commissioner, 88 T.C. 1306 (1987).
The deductions and unreported income stemmed from a tax shelter program colorfully dubbed "Gold for Tax Dollars" by its promoters. The details of the plan (which was also offered in slightly varied form for 1978 and 1980), as described in promotional materials, are explained a length in this Court's decision in Saviano v. Commissioner, 765 F.2d 643 (7th Cir. 1985).
The "Gold for Tax Dollars" plan proposed to take advantage of deductions from taxable income available for "all expenditures paid or incurred during the taxable year for the development of a mine . . . if paid or incurred after the existence of ores or minerals in commercially marketable quantities has been disclosed." 26 U.S.C. § 616(a). Hoping to convince ordinary investors to become miners, the plan advertised (for 1979) a 4:1 ratio of income deduction to cash investment: the "miner" who put up $5,000 could deduct $20,000 from taxable income that year.
This is how International Monetary Exchange (IME), the promoter of the program, proposed in 1979 to transform taxpayers into gold miners: The investor would deposit with IME one-fourth of the desired deduction. The investor obtained at no cost, through IME, a mineral lease from Compagnie Miniere Paul Isnard, S.A. (CMPI SA). CMPI SA held a gold mining concession from the government of French Guiana. The lease covered a specific quantity of gold-bearing gravel located at a particular zone on the CMPI SA concession, and each lease supposedly was to be developed as a distinct "claim." The "miner," again through IME, would sell to a third party a "gold option" for an amount equal to the other three-fourths of the desired deduction. This "gold option" gave the buyer of the option the right to buy gold at a fixed price from the particular claim, but only after the gold was extracted. The miner was under no obligation to extract any gold. The proceeds of the "gold option" sale, plus the original money deposited with IME, were supposedly paid by IME on behalf of the investor to General Miniere, S.A., a mining contractor which agreed to develop the claim. The investor would claim as a deduction the total amount of the cash investment and the option sale proceeds as mine development expenses under § 616(a). The investors would not report the option proceeds as income in 1979 because as IME informed them, no income was reportable until the option expires or is exercised. In Saviano, the Tax Court concluded that the right sold was "not a binding, legal option." 80 T.C. 955, 971 (1983), aff'd 765 F.2d 643 (7th Cir. 1985). This court, noting that Saviano did not attempt to argue that this was a true option, rejected Saviano's alternative theories why the proceeds were not income when received. 765 F.2d at 652-54.
For some unexplained reason, see Saviano v. Commissioner, 80 T.C. 955, 967 n. 16 (1983), the Adkins received a 5:1 deduction-to-investment ratio: they invested $4,000 cash, obtained $16,000 in option proceeds which were also purportedly spent on their behalf, and claimed a mining development expense deduction of $20,000. They did not report the proceeds of the option sale as income received in 1979. The Adkins report on a cash basis.
In Saviano, the matter was decided on cross-motions for summary judgment on specified issues, and it was assumed for that purpose that the transactions were consummated in the manner set out in the promotional and related documents. 80 T.C. at 956. In fact, Saviano did not deal with 1979 deductions, but, as to that year, decided only that the purported option was not a true option and the proceeds did not qualify for tax deferral.*fn1
In the case presently before us, however, there was a trial, and the Tax Court found in substance, among other things:
The mineral claim leases were totally fictitious. Twenty-five hundred (2500) or more plots in French Guiana were supposed to have been leased to IME's 1979 and 1980 tax shelter investors, but only 100 to 200 plots were ever even laid out on paper. The leases were issued sequentially without reference to any geographical location. Each reflected a number of cubic feet of auriferous gravel, but had no relationship to any actual gravel in an identifiable location. One plot, assigned to a Dr. Yuter, had been worked, but with that exception, it was not possible to locate any specific plot by referring to the claim number assigned to any investor by IME.
As stated by the Tax Court:
The bogus nature of the "lease" and development of these individual plots is emphasized by expert testimony at the trial that small plots, such as those purportedly sold by IME-Rogers, could not realistically be developed and mined, separate and apart from exploitation of the entire tract from which the plots were represented to be carved. But it was absolutely essential to the rationale of the tax scheme that the separate plots not be recharacterized as undivided interests since that would have raised the spectre of partnership treatment under the at-risk rules of sections 465 and 704(d), a fact carefully noted in tax opinion letters distributed with the promotion material.
The investors were given a copy of a cancelled check to represent the alleged option sale proceeds. The Tax Court found that "the check merely represented the transfer of funds from one  shell company to another." Id. at 1324. The court referred to the claim development expenses as "fictitious." The implication from all the findings is clear that the Tax Court found that ...