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allocations of partnership items are to be made pursuant to the
partnership agreements under section 704(a). Petitioner asserts
that certain partners defaulted on the notes to Ranches.
Petitioner contends that under the terms of the partnership
agreement the interests of these partners have been terminated.
Petitioner also contends that under the partnership agreement the
defaulting partners are to be treated as having never assumed
these obligations, and, therefore, they should not be allocated
any share of the partnership liabilities under the agreement.
Petitioner's contentions are not supported by the evidence
in the record. Petitioner has not produced any evidence that any
partners defaulted on the notes.
Even if we were to find that partners defaulted on the
notes, the original partnership agreement for Shorthorn Genetics
Engineering 1984-5 does not support petitioner's argument. The
partnership agreement contains a "look-back" provision, under
which allocations of income, losses, and other items may be made
to the partners' capital accounts at the end of the partnership's
fifth year to adjust the prior allocations. For this
partnership, these adjustments would not occur until sometime in
1989, after the taxable years at issue. We do not read this
provision to provide that the partners never assumed the
liability or to provide for retroactive allocations to prior
years. In addition, the partnership agreement does not provide
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