- 39 -
than he transferred to the partnerships. Although the GAP sheets
indicate that some interest payments were made to petitioner,
there is no evidence of repayments of principal.7
We now address petitioner's second argument, that the
payments are not income but are nontaxable distributions
chargeable to his capital accounts. Section 731 provides that a
partner recognizes gain to the extent that the amount of any
money distributed exceeds the adjusted basis of the partner's
interest in the partnership. Sec. 731(a). Section 1.731-1(a),
Income Tax Regs., provides that this rule is applicable to
current distributions and distributions in liquidation of a
partner's entire interest in a partnership. Section 707 is not
applicable to distributions of money or property by a partnership
to a partner. Sec. 1.707-1(a), Income Tax Regs.
Since we have determined that the payments petitioner
received are guaranteed payments within the purview of section
707(c), the payments are not distributions within the meaning of
section 731. Therefore, petitioner's argument that the payments
are chargeable to his capital accounts is without merit.
7 If petitioner had lent funds to a partnership and was
paid interest, such payment would, in any event, constitute
income, whereas a return of principal would not constitute
income.
Page: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 NextLast modified: May 25, 2011