The original partners in a Texas partnership (the "Old Partnership") formed a second Texas partnership (the "New Partnership"), the Old Partnership purchased interests in an Oklahoma and Texas gas well, and granted an option to the New Partnership to purchase all of its assets other than the interests in the wells, the taxpayers purchased all the partnership interests in the Old Partnership from the previous partners, and the New Partnership exercised its purchase option.
In finding that the taxpayers were not carrying on business in common following their purported purchase of the partnership interests, so that losses on the sale of assets by the Old Partnership could not be allocated to them, Mogan J. noted that the total purchase price for the wells was U.S.$25,000, such wells generated only $3,283 in net earnings over the following 10 years and that the owning of these minimal interests in the wells was so passive that the Old Partnership did not carry on any business after the date the taxpayers acquired their interests.