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IDC in calculating petitioner's basis in each partnership. Thus,
petitioner argues that respondent's reliance on the Schedules K-1
results in a double counting of IDC, improperly reducing
petitioner's basis. This view is incorrect.
In general, deductible items reduce both the partnership's
taxable income and each partner's basis in the partnership.
Pursuant to section 703, a partnership computes its taxable
income in the same manner as an individual, except that certain
items must be stated separately and certain deductions are not
allowed. IDC is an item that must be stated separately. Sec.
1.702-1(a)(8)(i), Income Tax Regs. Thus, in determining his
income tax, petitioner must take into account his distributive
share of loss due to IDC. Sec. 702(a). Pursuant to section
705(a), a partner's adjusted basis in his partnership interest is
increased by the partner's distributive share of taxable income
of the partnership and decreased by the partner's distributive
share of losses of the partnership. Thus, petitioner's adjusted
basis in each partnership interest was properly increased by
petitioner's distributive share of taxable income of the
partnership, net of petitioner's distributive share of IDC. The
deduction for IDC affects both petitioner's ultimate distributive
share of partnership income and petitioner's basis in the
partnership interest. Thus, reliance on the Schedules K-1 does
not result in an improper double counting.
On brief respondent relied on the Schedules K-1 in computing
petitioner's basis by taking the capital account balance at the
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