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have already been accounted for in respondent's figure of
$75,945. However, those not so accounted for include: (1) The
income, from whatever Woodbine-associated source, that Howard
Berger must accrue or had otherwise included no later than the
time of the transfer of his interest to Alice Berger (to be added
to basis); (2) the deposit income that Alice must accrue upon the
completion of the Phase II mausoleum and her other income from
the operation of Woodbine (also to be added to basis); (3)(a) the
draw payments and payments of Howard's expenses by Woodbine (to
be subtracted from basis) and (b) the similar payments by
Woodbine to or on behalf of Alice (also to be subtracted from
basis).15 All these adjustments must be made to the Woodbine
basis of $75,945 before we can determine Alice Berger's adjusted
15That the adjustments upward for (1) and (2) are
appropriate should be clear from the above discussion. The same
is true for the adjustments downward for (3) and (4). Neither
Howard nor Alice Berger reported any of the draw payments as
taxable income, and they were right not to do so. However, now
that we must determine Alice Berger's gain on the sale to the
Kunkowskis, the draw payments can no longer be ignored for tax
purposes. We must make the same changes to the basis of Woodbine
that we would make to the basis of partnership interests in the
hands of the partners. With respect to (3) and (4), we will have
potential windfalls if we don't make the adjustments predicated
upon Howard's and Alice's having received distributions from the
Woodbine business that were never taxed to them. Generally,
partners don't recognize gain or loss on receipt of cash
distributions from a partnership, sec. 731(a), but a partner's
basis in his partnership interest (outside basis) is reduced by
the amount of any money distributed by the partnership, secs.
705(a)(2), 733, provided the amounts he receives from the
partnership do not exceed his outside basis, sec. 731(a)(1).
The same is true here of Howard's and Alice's interests in
Woodbine.
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