The taxpayers set up an avoidance scheme wherein they bought partnership units with promissory notes to pay 7-10 years later an amount in Brazilian cruzeiros. The partnership contracted with a Brazilian research firm. The partnership paid in cruzeiros - approximately 20% of the amount owing was paid in cash, and 80% was an assignment of the promissory notes. The cruzeiro was experiencing rapid inflation, so the notes were nearly worthless - in effect, only 20% of the payment to the research firm was genuine.
In computing the partnership income, the amount of the promissory notes, measured using the current exchange rate, was deducted. Because the notes had no significant value at the time if they were used to pay the Brazilian firm, Anger J. disallowed their deduction.
(Angers J. subsequently disallowed the deductions entirely, under s. 67.)