John W. and Vincentia Schwartz - Page 11

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          computing the taxable income or loss.  See sec.                                    
          1.704-1(b)(1)(vii), Income Tax Regs."  Because the return and                      
          Schedules K-1 for Makalu during the relevant periods reflect only                  
          net loss and the partners' distributive share of that loss, the                    
          same share rule, that each partner's share of each partnership                     
          item was the same as his share of every other item available for                   
          distribution during the relevant period, was satisfied.                            
                Petitioners initially contend that Makalu fails to satisfy                   
          the same share requirement in that there is disproportionate                       
          treatment of items due to and including guaranteed payments and                    
          basis adjustments.  However, as we clearly stated in McKnight v.                   
          Commissioner, 99 T.C. at 184, such items are not considered                        
          "partnership items" for purposes of the same share requirement.                    
          Petitioners appear to concede this position in their posttrial                     
          briefs, and, in the alternative, argue that the disproportionate                   
          allocations of the partners' capital accounts is sufficient to                     
          place Makalu outside the scope of section 6231(a)(1)(B).                           
                In McKnight v. Commissioner, 99 T.C. at 186, we agreed with                  
          the Commissioner that "the rationale for limiting the partnership                  
          items applicable to the same share rule was to ensure that only                    
          items [having] a direct taxable impact on the partners, i.e.,                      
          items flowing through to the partners from the partnership under                   
          subtitle A, be analyzed."  We further agreed that "items that are                  
          consistently exclusive to a partner would not eliminate the                        
          availability of the small partnership exception."  Id.                             




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