                       T.C. Memo. 1996-504



                     UNITED STATES TAX COURT



  POISON CREEK RANCHES #1, LTD., POISON CREEK RANCHES #2, LTD.,
POISON CREEK RANCHES #3, LTD., POISON CREEK RANCHES #4, LTD.,
WALTER J. HOYT, III, TAX MATTERS PARTNER, ET AL.,1 Petitioner
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 28394-89,    28395-89,    Filed November 7, 1996.
                 28396-89,     7561-90.


     Walter J. Hoyt III (tax matters partner), pro se.

     Margaret A. Martin, for respondent.




1
     The following cases are consolidated herewith: Poison Creek
Ranches #1, Ltd., Poison Creek Ranches #2, Ltd., Poison Creek
Ranches #3, Ltd., Poison Creek Ranches #4, Ltd., Walter J. Hoyt
III, Tax Matters Partner, docket No. 28395-89; Poison Creek
Ranches #1, Ltd., Poison Creek Ranches #2, Ltd., Poison Creek
Ranches #3, Ltd., Poison Creek Ranches #4, Ltd., Walter J. Hoyt
III, Tax Matters Partner, docket No. 28396-89; Poison Creek
Ranches #1, Ltd., Poison Creek Ranches #2, Ltd., Poison Creek
Ranches #3, Ltd., Poison Creek Ranches #4, Ltd., Walter J. Hoyt
III, Tax Matters Partner, docket No. 7561-90.
                                - 2 -




               MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:    These consolidated cases were assigned to

Special Trial Judge Stanley J. Goldberg pursuant to section

7443A(b)(4) and Rules 180, 181, and 183.2    The Court agrees with

and adopts the opinion of the Special Trial Judge which is set

forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

     GOLDBERG, Special Trial Judge:     Respondent issued a notice

of final partnership administrative adjustments to each limited

partnership involved in these consolidated cases, determining

adjustments in the amounts and for the tax years set forth in the

Appendix.

     Walter, J. Hoyt III (petitioner), the tax matters partner

for each limited partnership (partnerships) involved herein,

filed a petition for redetermination of the partnership

adjustments.   Most issues have been settled by stipulations so

that the only remaining issues to be decided are:     (1) Each

limited partnership's correct amount of Schedule F income, if

any, and (2) the proper allocation of partnership items to the

partners.   At trial, respondent filed a "Motion for Entry of


2
     Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -


Decisions" and a proposed decision document in each case.

Respondent's motion was recharacterized as a motion for summary

judgment and filed as such.   If we decide that the partnerships

recognized Schedule F income, then the parties agree the amounts

of Schedule F income reflected in the proposed decision documents

are correct.   Further, if we find that respondent's method for

calculating the allocations is proper, then the parties agree

that the allocations shown on the proposed decision documents are

correct.

     These consolidated cases involved adjustments to partnership

income of Poison Creek Ranches #1 through #4 for taxable years

ended December 31, 1983, 1984, 1985, and 1986.    All the

partnerships are limited partnerships formed to engage in the

business of cattle breeding

     The Court has previously considered the tax consequences of

the Hoyt family cattle breeding operations in Bales v.

Commissioner, T.C. Memo. 1989-568.     The Bales case involved

deficiencies in Federal income taxes of individual limited

partners for the taxable years 1974 through 1980, who had

invested in Florin Farms #1, #2, #3, #4, and #5, Durham Farms #1,

#2, #3, and #4, and Washoe Ranches #1, #2, #3, #4, #5, and #6.

As a result of our opinion in Bales on May 20, 1993, Walter J.

Hoyt III, the general partner and tax matter partner, entered

into a settlement agreement (the agreement) with respondent's
                                - 4 -


Sacramento, California, Appeals Office, setting forth the basis

of settling all Hoyt cattle partnership cases for the taxable

years 1980 through 1986.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received into evidence

are incorporated by this reference.     The parties have agreed that

the testimony and transcripts of the proceedings in the cases at

docket No. 8916-89, Washoe Ranches #1, Ltd., et al., and related

cases, and docket No. 22003-89, Shorthorn Genetic Engineering

1982-1, Ltd., et al., and related cases, will be incorporated by

this reference into the record in these cases.

     The partnerships purchased the cattle used in their breeding

operations from Hoyt & Sons Ranches (Ranches).       In payment for

the cattle purchased, the partnerships executed promissory notes

payable to Ranches.   Thereafter, the partners signed assumption

of liability agreements, thereby assuming personal liability for

these recourse partnership liabilities.       Principal payments on

the notes became due starting in the sixth year after the notes

were signed.

     During the taxable years in issue, the partnerships

transferred cattle to Ranches in payment of principal and

interest due on the notes.    The parties introduced documentary

evidence of each of these transactions:       bills of sale from
                                - 5 -


Ranches to the partnerships; promissory notes from the

partnerships to Ranches; and bills of sale from the partnerships

to Ranches.

     The partnerships reported income recognized on the transfer

of cattle to Ranches in payment of principal and interest as gain

under section 1231.    Respondent adjusted this item to zero on the

final partnership administrative adjustments issued to each

partnership.

     Pursuant to the agreement, the numbers of cattle subject to

depreciation by the partnerships for the taxable years in issue

were reduced.   All cattle were subject to revised valuation as

well.   As a result, the amounts of principal due on the notes

payable to Ranches for the cattle purchased were treated as

reduced, and respondent recalculated the annual interest due

based on these amounts according to the provisions of the

agreement.    This interest was to be computed on an original

principal balance of $4,000, the settled cost basis of the

breeding cattle per head, times the number of cattle in service

during the first year of each partnership.    The agreement

provides that this new principal amount is the amount of

partnership debt to be treated as personally assumed by the

partners.

Schedule F Income

     In part, the agreement provides:
                              - 6 -


          The primary purpose of this memorandum is to
     memorialize the bases we reached for settling all cases
     involving Hoyt Cattle partnerships for the years 1980
     through 1986. It is our express intent to apply the
     provisions specified in this memorandum to determine the tax
     effects on partnership transactions and operations.

               *    *    *    *       *   *   *

     Satisfaction of obligations for interest, principal payments
     and management fees by transferring calves and culled cows
     will constitute ordinary income to the investor
     partnerships. This convention is consistent with the Tax
     Court's decision in Bales v. Commissioner, which provides
     that
          -- calves are not section 1231(a) property; and

          -- although culled cattle are section 1231(a) property,
          the gain on which may be long term capital gain
          (depending on the holding period), depreciation allowed
          must be recaptured as ordinary income under the
          provisions of section 1245.

     Principal payments equal to 10% of the face amount of the
     notes payable to Ranches will begin according to terms of
     the notes -- in the sixth year of the partnership * * *

     The agreement includes a provision listing "the total number

of cattle in service and subject to depreciation by the investor

partnerships" for each of the taxable years 1980 through 1986.

     The parties have stipulated:

           All payments on the promissory notes made by the
     partnerships to Hoyt & Sons Ranches beginning in the sixth
     year after their respective notes were executed were paid by
     transferring cattle with a zero basis, rather than cash.
     * * *

          The petitioners agree that all of the figures shown on
     Schedules (Joint Exhibits 36-AJ through 39-AM) [schedules of
     the interest and principal due for each of the years 1983
     through 1986] are correct. The petitioners agree that all
     of the interest and principal payments beginning in the
     sixth year of the notes were made by the transfers of cattle
     rather than cash. * * *
                               - 7 -


     Petitioner testified that the following terminology is used

in the cattle business.   Cattle are classified as calves from

birth to weaning; heifer calves being female calves.   After

weaning, females are referred to as heifers or yearling heifers.

A heifer that bears a calf is thereafter a cow.    Culled cows are

cows which are removed from the breeding herd because they are

suffering performance problems, such as not producing milk or not

breeding.   Cows may be culled due to age.

Allocations of Partnership Items

     The agreement provides in part:

     Each partner's profit and loss sharing percentage is
     determined annually by comparing the partner's capital
     account to the aggregate of the capital accounts of all
     partners in the partnership. This determination is made
     based on the total capital owned, not the total capital
     originally subscribed.

                *    *    *    *       *   *   *

     The amount of liabilities assumed personally by the partners
     during the first year of the partnership will be based on
     original subscription agreements, and will be provided by
     Walter J.




                *    *    *    *       *   *   *

     All partners who originally assumed personal liability for a
     portion of the partnership debt during the first year of the
     partnership -- whether they are now determined to be active
     or inactive partners -- will be assigned a share of the
     lower amount of recognized partnership debt described above.
     Each partner's share will be the exact same percentage as
     his/her share of the partnership debt originally assumed.

     The agreement defines active partners as those who continue
                                - 8 -


to honor their obligations to Ranches and continue to participate

in the partnership and inactive partners as those who have walked

away from their note obligations and/or no longer participate in

the partnership.

     As an alternative, respondent made a settlement offer to the

partners on an individual basis.    The terms of the offer provided

generally that a partner who accepted would be allowed a

deduction for any cash paid to the "Hoyt Organization" in the

year of payment.   The partner would not be allowed any other

deductions or credits nor be required to recognize any income

related to the partnerships.    The record does not indicate how

many partners accepted this settlement offer (referred to as the

out-of-pocket settlement).

     Respondent's spreadsheets calculating the partners'

interests in the partnerships have been stipulated and have been

received into evidence.   For the first year, respondent allocated

a portion of the partnership debt, which consisted of the reduced

amount of the notes to Ranches, to each of the partners who

assumed personal liability.    The allocation was based on the

original percentages of partnership liabilities assumed as

reflected in the partnerships' books and records.    The resulting

amounts represented each partner's beginning capital account

balance.   Each year respondent adjusted these balances for actual

capital contributions made to the partnerships and for increases
                                - 9 -


and decreases in liabilities assumed.       These adjusted balances

were used to determine the proportionate share of partnership

items to be allocated to each partner.       The capital account

balances were then adjusted to reflect the partnership items so

allocated and these balances were carried over to the next year.

     All of the partners included in respondent's proposed

decision documents had personally assumed partnership liabilities

as reflected in the partnerships' books and records and on the

Federal income tax returns filed by the partnerships throughout

the taxable years in issue.    Furthermore, petitioner agrees that

respondent's calculations are consistent with the books and

records of the partnerships.

     Several documents relating to one of the partnerships,

Poison Creek Ranches #1, have also been stipulated to and

received into evidence.   The partnership was formed as a limited

partnership under the laws of the State of Nevada in 1980.

     The partnership agreement provides in pertinent part:

           2. Each Limited Partner's interest in his share of the
     Partnership assets, profits and losses shall be the
     proportion which his capital contribution bears to the
     aggregate capital contributions of all Limited Partners.
     * * *

               *    *     *     *       *    *    *

     (a) The right to expel any Limited Partner who may fail or
     refuse to pay into the capital of the Partnership the entire
     amount of his subscription within thirty (30) days after its
     due date, or who may attempt to participate in or interfere
     in any way with the management of the Partnership's affairs,
     is hereby expressly reserved to the General Partner in its
                              - 10 -


     sole and absolute discretion.

                              OPINION

     At trial, respondent filed a motion for summary judgment in

these consolidated cases.   Given the disposition of the issue on

the merits as discussed below, we do not find it necessary to

address respondent's motion for summary judgment, and it will be

denied.

Schedule F Income

     Under section 6224 a settlement agreement between respondent

and a tax matters partner related to the determination of

partnership items for any partnership taxable year is binding on

the parties to the agreement with respect to the determination of

partnership items for such partnership taxable year unless there

is a showing of fraud, malfeasance, or misrepresentation of fact.

Sec. 6224(c).   Petitioner and respondent both assert that the

agreement is clear and unambiguous, and neither party seeks to

have it set aside.   However, the parties do not agree on the

proper interpretation and enforcement of the agreement.

     Petitioner argues that the settlement memorandum was a

complete integration of the agreement between petitioner and

respondent and that respondent is precluded from relying on facts

not contained therein.   Petitioner argues that because the

agreement limited the number of cattle subject to depreciation,

the agreement failed to provide for the cattle necessary for the
                              - 11 -


partnerships to make the payments of principal and interest to

Ranches by the transfer of cattle.     Petitioner contends that the

provision in the settlement agreement requiring payments of

principal on the notes must be read to include petitioner's

intention to have the partnerships make such payments by the

transfer of registered shorthorn heifers.    Petitioner further

contends that the "cattle" transferred in payment of the notes,

as stipulated, were not calves or culled cattle but registered

shorthorn heifers.   Petitioner argues that the Bales v.

Commissioner, supra, decision and the agreement do not apply to

the type of cattle transferred.

     Respondent argues that the terms of the agreement are clear,

limiting only the number of cattle subject to depreciation, not

the total number of cattle.   Because petitioner has stipulated

that all principal and some interest payments on the notes were

made by transferring cattle with a zero basis, respondent claims

that these cattle would be nondepreciable or fully depreciated

and not limited in number by the terms of the agreement.

Respondent argues that the partnerships must recognize ordinary

income in the amount of those payments by the terms of the

agreement.

     The settlement of tax cases is governed by general

principles of contract law.   We interpret the proper meaning of

the terms of the agreement by looking at the language of the
                               - 12 -


agreement and the circumstances surrounding its execution.

Robbins Tire Co. v. Commissioner, 52 T.C. 420, 435-436 (1969).

Generally, extrinsic evidence will not be admitted to expand,

vary, or explain the terms of a written agreement unless the

agreement is ambiguous.    Rink v. Commissioner, 100 T.C. 319, 325

(1993), affd. 47 F.3d 168 (6th Cir. 1995); Woods v. Commissioner,

92 T.C. 776, 780-781 (1989).   Petitioner bears the burden of

proving that his interpretation of any ambiguous contract

language is correct.   Rule 142(a); Rink v. Commissioner, supra at

326.

       The settlement agreement provides that the partnerships must

recognize ordinary income in the amount of any interest and

principal payments made by the transfer of calves.    In addition,

the partnerships must recognize income on the transfer of any

culled cattle in payment on the notes and such income will be

ordinary in character to the extent it represents depreciation

recapture.    The stipulations provide that the partnerships

transferred cattle with a zero basis in payment on the notes in

amounts stipulated.    We interpret this to mean that the

partnerships transferred calves, culled cattle, or some

combination thereof, to Ranches in payment of interest and

principal due on the notes.    Thus we find that the agreement

applies to this transaction.    Because the partnerships' bases in

these cattle were zero, petitioner must recognize ordinary income
                              - 13 -


in a manner consistent with the decision in Bales v.

Commissioner, supra, as provided in the agreement and

stipulations.   We believe that a reasonable person with knowledge

of the facts and circumstances surrounding the agreement would

interpret the agreement and stipulations in this manner.    We hold

that the agreement provides for the inclusion of Schedule F

income in the amounts shown in respondent's proposed decision

documents.

     Petitioner argues that this interpretation is inconsistent

with the other terms of the agreement.   An agreement should be

interpreted as a whole and any writings that are part of the same

transaction should be interpreted together.   2 Restatement,

Contracts 2d, sec. 202 (1981).   "An interpretation that gives a

reasonable meaning to all parts of the contract will be preferred

to one that leaves portions of the contract meaningless."      Rink

v. Commissioner, 47 F.3d 168, 171 (6th Cir. 1995), affg. 100 T.C.

319 (1993); 2 Restatement, Contracts 2d, sec. 202 (1981); 4

Williston on Contracts, sec. 618 (3d ed. 1961).

     Petitioner argues that the agreement limits the total number

and class of cattle held by the partnerships.   The provision

establishing the number of cattle held by the partnerships

clearly applies, by its terms, only to depreciable cattle.

Petitioner argues that we should infer from this language that no

other cattle exist.   We find this reading to be inconsistent with
                               - 14 -


other provisions of the agreement.

     For example, although not relevant to these cases, the

agreement provides that cattle owned by the partnerships as of

January 1, 1980, will be considered fully depreciated at the end

of 1981.    Thus the agreement provides that there are cattle that

are no longer subject to depreciation.

     In addition, as set out above, the agreement provides that

payments made by the partnerships to Ranches by transfer of

calves or culled cows will constitute ordinary income in a manner

consistent with the decision in Bales v. Commissioner, T.C. Memo.

1989-568.    In that case the Court stated that dispositions of

breeding cattle, including culled cows, are taxed pursuant to

section 1231(a) subject to the recapture provisions of section

1245.    The Court further stated that calves that are used for

payment on the notes are not held for breeding purposes and are

not accorded section 1231 treatment.     Bales v. Commissioner,

supra.   Such calves would not be subject to an allowance for

depreciation and thus would not be subject to the limitation on

depreciable cattle set forth above.     Sec. 1.167(a)-6(b), Income

Tax Regs.    If petitioner's reading were accepted, this provision

concerning calves would be rendered meaningless.

     We note that the agreement is not completely clear in all of

its terms.    In part, the agreement provides:   "For Federal income

tax purposes, all the cattle are adult breeding cattle, each
                              - 15 -


having an original depreciable basis of $4,000."   We do not

believe this provision is clear and unambiguous because it could

be read on its own to limit the type of cattle held by the

partnerships.   However, we interpret this paragraph as qualifying

the one directly proceeding it which limits the number of cattle

subject to depreciation for each year, and neither party has

suggested a different interpretation.   After considering these

provisions and the agreement as a whole, we reject petitioner's

argument that the provision limiting the number of depreciable

cattle should be read to limit the total number of cattle held by

the partnerships.

     Even if we found the agreement ambiguous as to this

provision, petitioner has offered no extrinsic evidence that

supports petitioner's position.   We find that the agreement

limits only the number of cattle subject to depreciation, but

does not limit the number of nondepreciable cattle owned by the

partnerships.

     Petitioner further argues that the portion of the agreement

which provides that principal payments will begin in the sixth

year of the partnership should be enforced by including that such

payments are to be made by the transfer of registered shorthorn

heifers.   The language of the agreement is silent as to the

method of payment.

     Petitioner's proffered evidence, when considered in light of
                              - 16 -


general contract principles, does not convince us that his

interpretation is correct.   When the Court asked petitioner

whether he assumed or intended that the provision meant that

payment would be made by the transfer of registered shorthorn

heifers, he responded "I wouldn't characterize it that way".     He

testified that he did not designate, in the provision of the

agreement, the class of cattle with which he intended to make

payment in the provision because he was focusing on trying to

draft a document for the basis of settlement.   We find that,

although the agreement does not provide a specific method of

payment on the notes, the parties have stipulated that the

payments were made by the transfer of cattle.

     Ordinarily, a stipulation of fact is binding on the parties,

and the Court is constrained to enforce it.   Rule 91.   The Court

will not permit a party to a stipulation to qualify, change, or

contradict the stipulation except where justice requires.    Rule

91(e).   The interpretation of a stipulation is determined

primarily by ascertaining the intent of the parties by applying

rules of contract law.   Stamos v. Commissioner, 87 T.C. 1451,

1455 (1986).

     As we understand petitioner's argument, petitioner claims

that the "cattle" transferred in payment on the notes as

stipulated were not culled cows or calves but were registered

shorthorn heifers, and, therefore, not covered by the agreement.
                                - 17 -


Petitioner argues that there is no gain to be recognized from the

transfers because the Bales v. Commissioner, supra, decision does

not apply to this class of cattle.       We disagree.

     The language of the Bales v. Commissioner, supra, decision

is not as narrow as petitioner argues.       The Court in Bales found

the following facts: "As for culled cattle used to pay principal

on the notes, we do have some indication that the partnerships

sold culled cows to Hoyt & Sons.    These are cattle which did not

fit the program.    Many were heifers which did not become

pregnant."   Bales v. Commissioner, T.C. Memo. 1989-568.      Thus the

terms "culled cattle" and "culled cows" as used in Bales included

heifers.

     Moreover, petitioner has stipulated that the cattle

transferred had a zero basis.    Thus the transfers result in

ordinary income to the partnerships regardless of whether the

cattle are heifers or culled cows and calves.       A stipulation may

be set aside where it is clearly contrary to the facts disclosed

on the record.     Cal-Maine Foods, Inc. v. Commissioner, 93 T.C.

181, 195 (1989).    The evidence offered by petitioner consists of

bills of sale from the partnerships to the Ranches corresponding

to the cattle that petitioner claims were transferred in payment

on the notes.    The bills refer to the cattle as "registered

shorthorn heifers."    The bills of sale do not indicate the

partnerships' basis in any of the cattle.       The facts on the
                              - 18 -


record do not show that the partnerships made payment on the

notes with cattle other than those with a zero basis as

stipulated.   Accordingly, the partnerships must recognize

ordinary income in the amounts of the payments of interest and

principal on the notes.

     Petitioner's argument concerning the terms of the agreement

and stipulation is not entirely clear, and we will briefly

address the alternate argument we believe petitioner may be

attempting to make.   The argument can be summarized as follows:

The agreement sets out the number of cattle subject to

depreciation on an annual basis; as stated in the petition, the

partnerships sold registered shorthorn heifers which had been

held for breeding purposes for over 24 months in payment of the

notes; these cattle would be depreciable; because the number of

cattle subject to depreciation does not decrease in correlation

to the cattle transferred in payment on the notes, the agreement

does not provide the partnerships with sufficient cattle to make

such payments.   Therefore, the payments could not have been made

under the binding terms of the agreement.

     We are not persuaded by this argument.   Even if the cattle

transferred were depreciable, registered shorthorn heifers,

petitioner has stipulated that the cattle had zero basis, and as

explained above, we will not set aside this stipulation.

Therefore, the cattle would be fully depreciated and outside of
                                - 19 -


the provision limiting the number of cattle held subject to

depreciation.

     In the alternative, petitioner argues that because

respondent calculated lower interest payable by the partnerships

for the years in issue consistent with the agreement, the

partnerships paid cash to Ranches in excess of the amounts due in

some of the years.    This cash, petitioner asserts, should be

applied to any future principal and interest due on the notes

payable to Ranches before the partnerships recognize any ordinary

income on the transfer of cattle in payment.

     Respondent argues that the stipulation clearly negates any

claim that the partnerships made payments on the notes with cash

and that petitioner is bound by the stipulation.

     The Court will hold the parties bound by a stipulation

unless justice requires otherwise.       Rule 91(e).   The Court may

modify or set aside a stipulation that is clearly contrary to the

facts revealed on the record.     Cal-Maine Foods v. Commissioner,

supra.

     Petitioner attached schedules entitled "Partnerships Cash

Reconciliation" to petitioner's posttrial brief for each of the

years 1980 through 1986.    This exhibit is not considered to be

evidence.   Rule 143(b).   Petitioner also argues that the

stipulations entered in two other cases are evidence in support

of his position.     Stipulations have effect in the cases in which
                               - 20 -


they are entered only and are not binding for any other purpose.

Rule 91(e).   Therefore, the stipulations from the other cases are

not evidence in these cases.

     Petitioner has offered no other evidence to show that any

cash was paid to Ranches.   The only evidence introduced by

petitioner is the bills of sale detailing the number of cattle

transferred as payment on the notes.     Moreover, petitioner

stipulated that the payments at issue were made by transferring

cattle, not cash.   This stipulation is not clearly contrary to

the facts disclosed on the record.      Therefore, we find that the

partnerships made interest and principal payments beginning in

the sixth year of the notes payable by transferring cattle.       The

partnerships must recognize ordinary income on the transfer of

cattle in the amounts stipulated.

Allocations of Partnership Items

     When a petition for readjustment of partnership items has

been filed properly, this Court has jurisdiction to decide all of

the partnership items of the partnership and the proper

allocation of these items to the partners for the partnership

taxable year at issue.   Sec. 6226(f).    Partnership items are

those items required to be taken into account for the

partnership's taxable year under subtitle A which are to the

extent provided by the regulations "more appropriately determined

at the partnership level than at the partner level."     Sec.
                                   - 21 -


6231(a)(3).   The regulations provide that such items include:

          (1) The partnership aggregate and each partner's share
     of each of the following:
             (i) Items of income, gain, loss, deduction, or
     credit of the partnership;

                *       *      *    *    *      *    *

          (v) Partnership liabilities (including determinations
     with respect to the amount of liabilities, whether
     liabilities are nonrecourse, and changes from the preceding
     taxable year); and

                *       *      *    *    *      *    *

          (4) Items relating to the following transactions, to
     the extent that a determination of such items can be made
     from determinations that the partnership is required to make
     with respect to an amount, the character of an amount, or
     the percentage interest of a partner in the partnership, for
     purposes of the partnership books and records or for
     purposes of * * * furnishing information to a partner:
             (i) Contributions to the partnership;
             (ii) Distributions from the partnership; and
             (iii) Transactions to which section 707(a) applies
     (including the application of section 707(b)).

Sec. 301.6231(a)(3)-1(a), Proced. & Admin. Regs.

     All partners who held an interest in the partnership for the

taxable year at issue generally will be treated as parties to a

partnership action.     Sec. 6226(c).       However, a partner is not a

party if he or she does not have an interest in the outcome of

the proceeding because such partner's partnership items have

become nonpartnership items pursuant to subsection (b) of section

6231.   Sec. 6226(d).       A partner's partnership items will be

treated as nonpartnership items as of the date on which the

partner enters into a settlement agreement with the respondent
                                - 22 -


with respect to such items.   Sec. 6231(b)(1)(C).    The

classification of items as partnership or nonpartnership items is

significant because the audit and litigation procedures provided

in sections 6221 through 6230 apply to partnership items.

Nonpartnership items are subject to the rules for judicial and

administrative resolution of the partner's tax liability and

cannot be the subject of a partnership proceeding.     See, e.g.,

Maxwell v. Commissioner, 87 T.C. 783, 788-789 (1986).

     Petitioner has made various arguments based on an assumption

that respondent included partners who have accepted the out-of-

pocket settlement in her calculations on which the proposed

decision documents are based.    Petitioner bears the burden of

proof in these cases.   Rule 142.   We begin by noting that there

is no evidence in the record concerning partners who have

accepted the out-of-pocket settlement.     Therefore, we have no

indication that any such partners were included in respondent's

calculations.   We will, however, further address petitioner's

arguments.

     Petitioner argues that the partnership income, losses,

credits, and liabilities calculated pursuant to the agreement

should be allocated to a limited group of partners.     Petitioner

contends that any partners who have accepted the out-of-pocket

settlement offer from respondent are not parties to this

proceeding pursuant to section 6226.     Therefore, petitioner
                              - 23 -


argues, the Court is prohibited from allocating partnership items

to those partners because we do not have jurisdiction to do so.

Petitioner also argues that pursuant to section 6231, the

partnership items of the partners who have accepted the out-of-

pocket settlement have been converted to nonpartnership items.

As a result, petitioner argues that these partners have no

partnership interest.

     Respondent argues that the Court has jurisdiction to

determine the allocation of items at issue in these cases because

the items are partnership items.   Respondent contends that in

order to determine the allocations to be made to the partners who

have not settled on an individual basis, it is necessary for the

Court to consider the capital accounts of all of the partners.

     Respondent argues that the TEFRA provisions are procedural,

and affect only the type of proceeding which may be brought, but

do not alter the substantive law of partnerships.   Thus,

respondent argues, the provisions do not have the effect of

removing partners from the partnership.

     The items at issue fall within the definition of partnership

items.   The determination of the allocation of partnership items

to the parties to this action requires that we consider the

partnership aggregate of each item including partnership capital.

A partner's allocable interest in each item is determined based

on the share of total partnership capital contributed by the
                               - 24 -


partner.

     The effect of a partner's accepting the out-of-pocket

settlement is that the partner and respondent have agreed on the

treatment of the partner's share of partnership items for Federal

tax purposes.   Under sections 6226 and 6231, such partner is not

a party to this partnership action and is not bound by our

determinations. However, the partner is still a party to the

partnership agreement and retains his interest as partner in the

partnership.    Thus, the allocations of partnership items must be

computed by including the interests of all partners, including

any who have accepted the out-of-pocket settlement.

     Petitioner also contends that by the terms of the

partnership agreement, the tax matters partner has the authority

to accept the out-of-pocket settlement on behalf of individual

partners, that he has exercised such authority with respect to

certain partners, and that these partners are no longer parties

to this action.   Because we have held that the status of the

partners with respect to these cases does not affect our

jurisdiction to determine the allocation of partnership items

above, we find no merit in this argument.   In addition, the

partnership agreement for Poison Creek Ranches #1 does not

contain any provisions with respect to the tax matters partner,

his rights, or his duties.

     In the alternative, petitioner argues that the proper
                              - 25 -


interpretation of the agreement supports his contention that the

partnership items should be allocated to a limited number of

partners.

     First, petitioner asserts, on brief, that the tax matters

partner believed that pursuant to the Code provisions, partners

who settled on an individual basis should be excluded from

allocations to be determined under the agreement because such

partners are no longer parties to this action.

     Respondent argues that even assuming that the tax matters

partner believed the calculations under the agreement would be

made by applying its provisions only to the partners who are

parties to this action, such belief is a mistake of law, and thus

it does not preclude enforcement of the agreement.

     Assertions made in briefs do not constitute evidence.   Rule

143(b).   There is no evidence on the record to support

petitioner's assertion as to the belief of the tax matters

partner at the time the agreement was made.   Further, we agree

with respondent that the tax matters partner's asserted belief is

mistaken, and, whether the mistake is of fact or law, it is not

grounds for rescinding an agreement under section 6224.   Korff v.

Commissioner, T.C. Memo. 1993-33.   Therefore, the agreement is

enforceable.

     In the alternative, petitioner argues that by its terms the

agreement does not apply to partners who have settled with the
                                - 26 -


respondent on an individual basis.       Petitioner relies on the

following language:   "The primary purpose of this memorandum is

to memorialize the bases we reached for settling all cases

involving Hoyt partnerships for the years 1980 through 1986."

Petitioner argues that the agreement therefore has no relevance

for partners who are not parties to this action.

     Again, we note, that there is no evidence in the record

concerning the extent to which respondent's calculations include

partners who have accepted the out-of-pocket settlement.       In any

event, we find that the language of the agreement providing for

the calculation of the allocations of partnership liabilities and

other items to the partners is clear.       Each section refers to

"the partners" or "all partners".    Therefore, we find that

inclusion of all partners in the calculations is appropriate.

     In the alternative, petitioner argues that the terms of the

partnership agreements control these allocations and that

respondent's calculations are inconsistent with the requirements

of the partnership agreements.    Petitioner contends that the

provisions of the partnership agreements require that partnership

items be reallocated in accordance with the partner's real

interests in the partnership.    Petitioner argues that the

allocations of partnership items are to be made pursuant to the

partnership agreements under section 704(a).       Petitioner asserts

that certain partners defaulted on the notes to Ranches.
                              - 27 -


Petitioner contends that under the terms of the partnership

agreement the interests of these partners have been terminated.

Petitioner also contends that under the partnership agreement the

partners are to be treated as having never assumed these

obligations, and, therefore, they should not be allocated any

share of the partnership liabilities under the agreement.

     Petitioner's contentions are not supported by the evidence

in the record.   Petitioner has not produced any evidence that any

partners defaulted on the notes.

     Even if we were to find that the partners defaulted on the

notes, the partnership agreement for Poison Creek Ranches #1 does

not support petitioner's argument.     The partnership agreement

does not provide for the adjustment or reallocation of

partnership items to the limited partners.     In addition, the

partnership agreement provides that a limited partner may be

expelled for defaulting on his or her subscribed contribution,

not for defaulting on partnership obligations.     Nor does the

partnership agreement provide that an expulsion is retroactive to

the beginning of the partnership.

     Moreover, the settlement agreement expressly provides for

the inclusion of partners who later default on their note

obligations to Ranches (inactive partners) in the original

allocations of the partnership debt.     The agreement is binding on

the parties.   Sec. 6224.
                              - 28 -


     Petitioner also makes the following secondary arguments:

(1) Various partners' interests have been terminated due to the

partners' actions or inactions; (2) a large number of partners

defaulted on the notes to Ranches in 1987, and their cattle have

been repossessed; therefore, these partners should not be

allocated any partnership debt; and (3) certain partners

terminated their interests in 1994 by letters alleging that the

partnerships were terminated shortly after inception.

     Respondent objected to any evidence of these purported

actions or inactions as irrelevant because they were subsequent

to the taxable years at issue.

     Evidence is relevant if it tends to make the existence of

any fact that is of consequence to the determination of the

action more probable or less probable than it would be without

the evidence.   Fed. R. Evid. 401.   Petitioner proffered evidence

of various livestock exhibitions, sales and programs, letter

writing campaigns from 1992 through 1994, and a management

agreement between Shorthorn Genetic Engineering 1983 #3 and W.J.

Hoyt Sons Management Co., Ltd., for years beginning with 1993, as

well as termination of interest letters from partners written in

1994.   Petitioner has provided no explanation of the relevance of

these documents to the taxable years at issue.   The evidence does

not tend to show that any partners withdrew from or had their

interests in any of the partnerships terminated during the
                              - 29 -


taxable years at issue.   Respondent's objection is sustained.

     The only evidence in the record that any cattle were

repossessed is petitioner's own general testimony that cattle

were repossessed.   Even if we believed that the cattle were

repossessed by Ranches, the repossession occurred after the

taxable years in issue and is not relevant to these cases.

     To reflect the foregoing,


                           An appropriate order and decision

                      will be entered in each case.
                                                       - 30 -


                                                     APPENDIX




                                                   Taxable                        Adjustments
                                                   Year       Investment   Ordinary Separately Stated
Docket No. Partnership                              Ending    Tax Credit   Income     Partnership Items

28394-89   Poison   Creek   Ranches   #1,   LTD.   12/31/83      $0    $354,738               $21,250
           Poison   Creek   Ranches   #2,   LTD.   12/31/83       0     334,265                12,950
           Poison   Creek   Ranches   #3,   LTD.   12/31/83       0     360,477                12,900
           Poison   Creek   Ranches   #4,   LTD.   12/31/83       0     353,515                19,275

28395-89   Poison   Creek   Ranches   #1,   LTD.   12/31/84       0     384,958              (99,645)
           Poison   Creek   Ranches   #2,   LTD.   12/31/84       0     430,773              (51,500)
           Poison   Creek   Ranches   #3,   LTD.   12/31/84       0     397,430              (16,993)
           Poison   Creek   Ranches   #4,   LTD.   12/31/84       0     433,738              (21,900)

28396-89   Poison   Creek   Ranches   #1,   LTD.   12/31/85   11,895              242,256                      0
           Poison   Creek   Ranches   #2,   LTD.   12/31/85   11,896              210,763                 22,000
           Poison   Creek   Ranches   #3,   LTD.   12/31/85   11,895              190,511                 24,000
           Poison   Creek   Ranches   #4,   LTD.   12/31/85   11,896              344,461                 24,000

7561-90    Poison   Creek   Ranches   #1,   LTD.   12/31/86       0     362,534             (230,498)
           Poison   Creek   Ranches   #2,   LTD.   12/31/86       0     320,864             (291,693)
           Poison   Creek   Ranches   #3,   LTD.   12/31/86       0     332,559             (271,656)
           Poison   Creek   Ranches   #4,   LTD.   12/31/86       0     432,785             (356,201)
