                       T.C. Memo. 1997-198



                     UNITED STATES TAX COURT



          GEORGE A. AND MARYSUE COWARD, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22986-89.                     Filed April 30, 1997.


     Steven B. Jacobs, for petitioners.

     Alan E. Staines, for respondent.


                       MEMORANDUM OPINION

     GOLDBERG, Special Trial Judge:     This case was assigned

pursuant to section 7443A(b)(4) and Rules 180, 181, and 183.1

     Respondent determined deficiencies in, and additions to

petitioners' Federal income taxes as follows:


1
     Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                                     2

                                    Additions to Tax               Additional Interest
                        Sec.       Sec.       Sec.         Sec.             Sec.
  Year   Deficiency    6653(a)   6653(a)(1) 6653(a)(2)     6659            6621(c)

  1975       $ 4,847     $242        --        --            --
  1976         4,946      247        --        --            --
  1977         6,576      329        --        --            --
  1978         7,231      362        --        --            --
  1979         6,789      339        --        --            --
  1980        11,655      583        --        --            --
                                                1
  1981        13,081       --       $654                  $3,924
                                                1
  1982         9,751       --        488                   2,925
    1
       50 percent of the interest due to the underpayment of tax attributable to negligence or
intentional disregard of rules and regulations.
     2
        120 percent of the interest due with respect to any substantial underpayment attributable to
tax motivated transactions.


                 After concessions reflected in the Stipulation of Settled

         Issues, filed March 24, 1995,2 the issue for decision is whether

         petitioners are entitled to an investment tax credit for the

         taxable year 1978, and, if so, in what amount, and whether they

         are entitled to any related carrybacks.                    This case was submitted

         fully stipulated pursuant to Rule 122.                    The stipulation of facts

         and the attached exhibits are incorporated herein by this

         reference.       Petitioners resided in Fair Oaks, California, at the


         2
              In their Stipulation of Settled Issues, the parties
         stipulated that, exclusive of the investment tax credit issue,
         there are deficiencies in petitioners' Federal income taxes as
         follows:
                          Taxable Year       Deficiency
                              1975             $4,847
                              1976              4,946
                              1977              6,727
                              1978              1,495
                              1979              1,549
                              1980              9,043
                              1981              8,750
                              1982              3,468

               The parties further stipulated that there are no additions to tax under
         secs. 6653(a), 6653(a)(1), 6653(a)(2), and 6659 for any of the years in issue,
         and that no part of the deficiencies is a substantial underpayment for the
         purposes of computing interest payable with respect to such amounts pursuant
         to sec. 6621(c) (formerly sec. 6621(d)).
                                 3

time that they filed their petition.   The pertinent facts are

summarized below.

     George Coward (petitioner) was an investor in Washoe Ranches

#7 LTD. (the partnership), a limited partnership formed to engage

in the business of breeding cattle.    On December 20, 1978, Walter

J. Hoyt III, as general partner, executed the Certificate and

Articles of Limited Partnership for the partnership.    Mr. Hoyt

signed the limited partnership agreement on behalf of each of the

limited partners including petitioner.   The agreement stated that

it was executed on January 1, 1978.    The agreement was filed with

the county of Washoe, Nevada.

     The partnership agreement provided that each limited partner

would contribute cash to partnership capital in the amount set

forth after his name.   No amount was shown on the agreement after

any limited partner's name.   On December 28, 1978, petitioner

made his first and only capital contribution to the partnership

for the taxable year 1978 in the amount of $500.   The partnership

records show that capital contributions to the partnership from

the six limited partners totaled $2,750 for that taxable year,

and all of the contributions were made on December 28, 1978.     On

March 18, 1979, petitioner signed an agreement to purchase 12

units of the partnership for $30,000 as his interest.

     Under the terms of the partnership agreement, the general

partner was not to contribute capital to the partnership.    The

general partner was responsible for managing the partnership.      In
                                 4

compensation, the general partner was to be allocated 15 percent

of the partnership profits.

     The partnership agreement in effect for 1978 provided that

85 percent of the profits, if any, of the partnership were

allocable to the limited partners.   Under the same agreement, 100

percent of the assets and losses of the partnership, if any, were

to be allocated to the limited partners.   Each limited partner's

profit or loss sharing ratio was to be determined by dividing his

total capital contributions by the total capital contributions

received from all of the limited partners according to the terms

of the agreement.

     A livestock bill of sale was executed by Hoyt & Sons as

seller, transferring cattle to the partnership, for a purchase

price of $1,281,620.   The bill of sale was dated January 15,

1978, and provided the following:

     the seller, signing hereunder and residing in the County of
     Harney State of Oregon, For valuable consideration in the
     amount of 1,281,620.00 Dollars [], The receipt whereof is
     hereby acknowledged [] and, by these presents, do[es]
     bargain and sell unto Washoe Ranches 7 LTD (Purchaser) the
     herein described livestock, * * * .

The following head of cattle were listed: 235 bred heifers, 1

heifer, 1 catch calf, 130 open heifers, and 1 open heifer.

     Walter J. Hoyt III, as general partner, executed a

promissory note payable to Hoyt & Sons in the principal amount of

$1,281,620.   Walter J. Hoyt III signed the note on behalf of the
                                         5

partnership and on behalf of each of six limited partners,

including petitioner, as attorney-in-fact.

      The partnership filed a Form 1065, U.S. Partnership Return

of Income, for the taxable year ending December 31, 1978.                The

return reports that the partnership started business on January

20, 1978.     The Form 1065 shows total partnership capital of

$3,100.

      The Schedules K-1 attached to the partnership return

allocated the total purchase price indicated on the January bill

of sale as the basis of the cattle to the limited partners.                  The

basis of new investment property with a life of 7 or more years

was reported as $1,203,020.          The cost of used investment property

with a life of 7 or more years was reported as $78,600.                The

Schedules K-1 reflect the following partnership interests and

allocations:
                             Profit Loss     Basis New    Cost Used
                   Capital   Sharing Sharing Investment   Investment
Partner            Account   Ratio   Ratio   Property     Property
Daniel Gallagher      $250     7%      8%     $ 65,500       -0-
William Bingston       500    20%     23%      337,800       -0-
George Coward          500    12%     14%      165,200       -0-
John D. Gaskins        500    --      --       222,800       -0-
Bobby D. Chiles        500    --      --       267,520       -0-
Alonzo Corwin          500    15%     18%      144,200     78,600
W. Jay Hoyt III        100    15%     --         --          --
  Totals             2,850                   1,203,020     78,600


Petitioner's sharing ratios were reported incorrectly on the

Schedule K-1 for 1978.         As of December 31, 1978, petitioner's

correct share of partnership capital was 18.182 percent.

      Petitioners claimed investment tax credit basis for new

property with a life of 7 or more years in the amount of $165,200
                                     6

as their distributive share of the partnership's investment tax

credit basis on their Federal income tax return filed for 1978.

Petitioners claimed an investment tax credit of $16,520 for the

year.    None of this amount was used to reduce petitioners' tax

liability for the taxable year 1978.         Petitioners carried back

the investment tax credit to taxable years 1975, 1976, and 1977,

in the amounts of $4,847, $4,946, and $6,727, respectively.

     In the notice of deficiency, respondent determined that

petitioners had not established that they were entitled to the

claimed investment tax credit.       Respondent disallowed the credit

and carrybacks.

     As an initial matter, on brief petitioners argue that our

findings in Bales v. Commissioner, T.C. Memo. 1989-568, are

binding on the parties to this action under the theory of

collateral estoppel.     That case involved certain limited partners

who invested in partnerships formed by Walter J. Hoyt III, to

engage in the business of breeding cattle.

        Collateral estoppel is an affirmative defense which must be

specifically pleaded.     Rule 39.       Collateral estoppel precludes

litigation by parties or their privies, in a later suit on a

different cause of action, of issues of fact and law actually

litigated and necessarily decided by a court in reaching a prior

judgment.     United States v. Mendoza, 464 U.S. 154, 158 (1984).

"Collateral estoppel may apply to matters of fact, matters of
                                 7

law, or to mixed matters of law and fact."   Brotman v.

Commissioner, 105 T.C. 141, 148 (1995).

     Respondent argues that petitioners improperly raised the

collateral estoppel defense for the first time in their brief.

     In their petition petitioners asserted the following:

     The facts upon which the Petitioner relies as the basis of
     this case are as follows:
          (a) The Petitioner is a Partner in a Partnership that
     is either involved in or is closely related to, seventeen
     Partnerships whose business activities for 1977, 1978, and
     1979 are now before this court in a consolidated case
     entitled Bales v. Commissioner, Docket# 12479-82, * * *
          (b) The stipulation of the parties, trial testimony,
     and briefs filed by the parties in the Bales case will
     provide this court with certain background facts about the
     petitioners' partnership business operations, ownership,
     cattle management agreements, and legal status that are not
     stated herein.

     Petitioners' reference to Bales v. Commissioner, T.C. Memo.

1989-568, is clear, and we are aware that Bales was not yet

decided at the time they filed their petition.   However, we do

not believe that the allegations contained in the petition

constituted an affirmative pleading that any factual or legal

issues decided in Bales were identical to those involved in this

case for purposes of raising a defense of collateral estoppel.

Thus, petitioners have not properly pleaded this defense, and

therefore it is waived.   Gustafson v. Commissioner, 97 T.C. 85,

90 (1991).

     Assuming petitioners had properly raised the doctrine of

collateral estoppel, petitioners bear the burden of proving this

affirmative defense.   Rules 39, 142(a); Calcutt v. Commissioner,
                                   8

91 T.C. 14, 20-21 (1988).    For collateral estoppel to apply, an

issue litigated and decided in the previous action must be

identical with the issue presently before the Court.     Montana v.

United States, 440 U.S. 147, 153 (1979); Peck v. Commissioner, 90

T.C. 162, 166-167, affd. 904 F.2d 525 (9th Cir. 1990).

Petitioners have not established that the issue presented herein

is identical to one of the issues presented in Bales v.

Commissioner, supra.

     The taxpayers in Bales v. Commissioner, supra, were partners

in several limited partnerships which were organized by Walter J.

Hoyt III to engage in the business of breeding cattle.    The

issues presented in that case included whether purchases of

breeding cattle by those partnerships were bona fide

transactions, and, if so, whether such purchases were eligible

for the investment tax credit.    The Court held: "Cattle are

section 38 property and therefore eligible for the credit. Sec.

48(a)(6)."   However, the transactions involving Washoe Ranches #7

LTD. were not before the Court in Bales v. Commissioner, supra.

There is no dispute that cattle are section 38 property, and that

purchases of cattle may be eligible for the investment tax

credit.   The issue in this case is whether cattle were acquired

and placed in service by Washoe Ranches #7 LTD. in 1978.    This

issue is not identical to an issue litigated and decided in Bales

v. Commissioner, supra.     Nor has it been shown that petitioners

are in privity with the taxpayers in Bales.     Thus, respondent is
                                 9

not collaterally estopped from litigating the issue presented for

decision in this case.   See also Wolff v. Commissioner, T.C.

Memo. 1994-196.

     In the alternative, petitioners request that we take

judicial notice of our decision in Bales v. Commissioner, supra.

     Rule 201 of the Federal Rules of Evidence, provides in part:

     (a) Scope of rule. This rule governs only judicial notice
     of adjudicative facts.
     (b) Kinds of facts. A judicially noticed fact must be one
     not subject to reasonable dispute in that it is either (1)
     generally known within the territorial jurisdiction of the
     trial court or (2) capable of accurate and ready
     determination by resort to sources whose accuracy cannot
     reasonably be questioned.

We may take judicial notice of opinions of this Court, Estate of

Reis v. Commissioner, 87 T.C. 1016, 1027 (1986), and do so in

this case.   However, "The mere fact that a court in one opinion

makes findings of fact is not a basis for the same or another

court in another proceeding to take judicial notice of those

findings and deem them to be indisputably established for

purposes of the pending litigation."   Id. at 1028-1029.    As we

have noted, transactions involving Washoe Ranches #7 LTD. were

not before the Court in Bales.   The findings of facts in Bales v.

Commissioner, supra, are not conclusive here.

     Respondent's determination is presumed to be correct, and

petitioners have the burden of proving entitlement to the claimed

credit.   Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).
                                10

The burden of proof is not altered by submission of the case

fully stipulated under Rule 122.     Rule 122(b).

     Determining when a partnership is formed is a question of

fact.   Sparks v. Commissioner, 87 T.C. 1279, 1282 (1986).       For

Federal income tax purposes, a partnership comes into existence

"`when the parties to a venture join together capital or services

with the intent of conducting presently an enterprise or

business.'"   Antonides v. Commissioner, 91 T.C. 686, 698 (1988),

(quoting Sparks v. Commissioner, supra at 1282), affd. 893 F.2d

656 (4th Cir. 1990).   A partnership is deemed to be formed as of

the date that the first parties to the venture acquired their

respective capital interests in such partnership.     Sparks v.

Commissioner, supra at 1283.   To qualify as a partner, each party

must contribute capital or services to the partnership.      Id.

     In determining a partner's investment tax basis with respect

to partnership property, the regulations provide:     "each partner

shall take into account separately, * * *, his share of the basis

of partnership new section 38 property and his share of the cost

of partnership used section 38 property placed in service by the

partnership during such partnership taxable year."     Sec. 1.46-

3(f)(1), Income Tax Regs.   As a general rule "Each partner's

share of the basis (or cost) of any section 38 property shall be

determined in accordance with the ratio in which the partners

divide the general profits of the partnership".     Sec. 1.46-

3(f)(2)(i), Income Tax Regs.
                                11

     Section 48(b) defines "new section 38 property" as section

38 property "acquired after December 31, 1961, if the original

use of such property commences with the taxpayer".    Section 38

property acquired by purchase that is not new section 38 property

is considered "used section 38 property."    Sec. 48(c).   The

original use of property is "the first use to which the property

is put, whether or not such use corresponds to the use of such

property by the taxpayer."   Sec. 1.48-2(b)(7), Income Tax Regs;

see Baicker v. Commissioner, 93 T.C. 316, 322 (1989).      The amount

of the investment tax credit may depend on whether the section 38

property is new or used within the meaning of section 48.      Sec.

48(c)(2).3   Property generally is "placed in service" in the year

in which such property is "placed in a condition or state of

readiness and availability for a specifically assigned function".

Sec. 1.46-3(d), Income Tax Regs.

     In this case, the evidence indicates that the partnership

came into existence for Federal tax purposes as of December 28,

1978, the date on which the limited partners made capital

contributions to the partnership.    Up until that time, the

partnership was without capital and could not conduct business.

Although the partnership agreement was entered into on December



3
     For tax year 1978, sec. 48(c)(2)(A) provides: "The cost of
used section 38 property taken into account under section
46(c)(1)(B) for any taxable year shall not exceed $100,000."
This limitation applies at the partnership level and at the
partner level. Sec. 48(c)(2)(D).
                                12

20, 1978, the amount of capital which each partner was to

contribute to the partnership was left blank.

     Respondent argues that because the partnership did not exist

at the time of the cattle purchase, the partnership could not

have engaged in the purchase and thus had no basis in the cattle.

Therefore, respondent argues petitioner received no distributive

share of basis in such cattle upon which petitioners can claim an

investment tax credit.   Petitioners counter that the cattle

purchase was part of the pre-operating activities engaged in by

Walter J. Hoyt III as general partner.   Petitioners argue that

the partnership became a party to the transaction on formation.4

     We find petitioners' argument persuasive.   Walter J. Hoyt

III was purporting to act on behalf of Washoe Ranches #7 LTD.

when he entered into the cattle purchase.   Washoe Ranches #7 LTD.

became a party to the transaction in December 1978 when the

partnership accepted the cattle received as a result of the

purchase,5 and the partnership expressly accepted liability for

4
     Petitioners rely on California law in support of their
argument. We do not understand California law to govern in this
case as the record indicates that the partnership was formed as a
Nevada limited partnership, the partnership agreement was filed
with the county of Washoe, Nevada, and the principal offices of
the partnership were located in Nevada. Nothing in the record
indicates that the partnership carried on its operations in
California. However, we are persuaded that petitioners' position
is consistent with Nevada law.
5
     The Supreme Court of Nevada has held that such acceptance of
the benefits of the transaction constitutes ratification of the
contract. See, e.g., European Motors, Ltd. v. Oden, 344 P.2d
195, 197 (Nev. 1959). The Second Restatement of Agency
                                13

the purchase price thereof.   Thus, the partnership acquired the

cattle by purchase, and the partnership, therefore, had basis in

the cattle equal to the cost.   Sec. 1012.

     Respondent next argues that petitioners have failed to

establish when the cattle were placed in service.   Petitioners

argue that it is not significant when the cattle were placed in

service if it occurred within the taxable year 1978.

     Upon consideration, we are not persuaded by either argument

in its entirety.   The majority of the cattle was identified as

bred heifers, meaning these cows had been impregnated.   The

average gestation period of cattle is approximately 9 to 10

months.6   There is nothing in the record indicating what happened

to the cattle during the 11 months between the sale by Hoyt &

Sons and the acquisition of the cattle by the partnership for its

breeding operations.   However, given the considerable passage of

time, some, if not all, of the bred heifers must have given birth

during this time, and we believe this activity constitutes




characterizes such acceptance as an adoption. See Restatement,
Agency 2d, sec. 104 & comment (a) (1958). For these purposes,
the labels are not significant.
6
     The average gestation period for cattle is 284 days, with a
variation range of 260-300 days. See 5 New Encyclopedia
Britannica, Gestation 227 (15th ed. 1993). "It is generally
accepted that courts may take judicial notice of scientific facts
which are commonly known and which may be found in encyclopedias,
dictionaries, or other publications." Mattes v. Commissioner, 77
T.C. 650, 653 n.3 (1981).
                                  14

original use within the meaning of section 48.7     Thus,

petitioners have failed to establish that the original use of

these bred heifers commenced with the partnership.     Therefore, by

definition they are deemed to be used section 38 property when

the partnership acquired them.

     Based on the record, we find that the cattle were placed in

service by the partnership on December 28, 1978.     The cows, the

majority of which had already been bred, were in a state of

readiness for their assigned function of breeding.     Petitioner

was a partner in the partnership at that time, and thus

petitioners are entitled to a distributive share of the

investment tax credit basis and cost for the purchase of the

cattle.8   For these purposes, the partnership's cost of the bred

heifers is limited to $100,000.    Sec. 48(c)(2).

7
          In determining whether livestock acquired by a taxpayer
     is new or used property for purposes of the credit, the
     committee intends that livestock be treated in a manner
     consistent with that provided in the Treasury regulations
     for other types of property. Property is considered new
     property for purposes of the credit if its original use
     commences with the taxpayer. The regulations provide that
     the term "original use" means the first use to which
     property is placed, whether or not the use corresponds to
     the use of the property by the taxpayer. However, where the
     property qualifies as a breeding or dairy animal, it will
     normally be regarded as a new article at the time it is
     first used for these purposes, that is, at the time its
     suitability is established by the bearing of a calf or the
     giving milk, assuming it has not been used for other
     purposes prior to that time.
S. Rept. 92-437 at 33, (1971), 1972-1 C.B. 559, 577.
8
     Petitioner's sharing ratio is based upon his profits-sharing
ratio, 85 percent of 18.182 percent or 15.455 percent.
                                 15

     We have considered all arguments by the parties, and, to the

extent not discussed above, find them to be irrelevant or without

merit.

     To reflect the foregoing,


                                           Decision will be entered

                                      under Rule 155.
