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deficit make-up provision in the Pecaris partnership agreement,
sec. 1.704-1(b)(2)(ii)(b)(3), Income Tax Regs. Even assuming for
the sake of argument that allocating gain from the sale of the
Mall to petitioner would lack substantial economic effect under
the section 704(b) regulations, his distributive share of income
should then be determined in accordance with his interest in the
partnership. Sec. 1.704-1(b)(3), Income Tax Regs. Absent
substantial economic effect, petitioner and the other Pecaris
partners would still be allocated gain in accordance with their
respective partnership interests under the partnership agreement.
Accordingly, we hold that petitioner's distributive share of
Pecaris partnership gain is recognized to him on the Pecaris
partnership sale of the Mall. As a 25-percent partner of
Pecaris, petitioner's distributive share of gain from the sale of
the Mall is $827,968 (Pecaris gain of $3,311,873 x .25).
____________________________
Before we address the additions to tax, we briefly advert to
three issues lurking in the record that are not in issue: The
$100,000 brokerage commission that was not the subject of an
additional adjustment by respondent; petitioner's pretrial
motion, which we denied, for leave to amend petition to take
account of any reduction in petitioner's reported taxable income
from Coastal that would result from the increased basis of the
Mall buildings and tangible personal property in the hands of
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