-21- partner would have received in a liquidation at the end of the prior year. This is referred to as the comparative liquidation test. Specifically: the partner's interests in the partnership with respect to the portion of the allocation that lacks economic effect will be determined by comparing the manner in which distributions (and contributions) would be made if all partnership property were sold at book value and the partnership were liquidated immediately following the end of the taxable year to which the allocation relates with the manner in which distributions (and contributions) would be made if all partnership property were sold at book value and the partnership were liquidated immediately following the end of the prior taxable year, and adjusting the result for the items described in (4), (5), and (6) of paragraph (b)(2)(ii)(d) of this section. A determination made under this paragraph (b)(3)(iii) will have no force if the economic effect of valid allocations made in the same manner is insubstantial under paragraph (b)(2)(iii) of this section. * * * Sec. 1.704-1(b)(3)(iii), Income Tax Regs. Under the comparative liquidation test, if allocation of an item of partnership loss or deduction is at issue, the regulation requires that the loss or deduction be attributed to the partner who would be required to make up a deficit in partnership assets upon liquidation. Both parties maintain that this comparative liquidation test applies to show that their allocation schemes are in accordance with the partners' interests. The manner in which each applies the test, however, differs. Respondent's application of the comparative liquidation test is somewhat less complex than petitioner's. Accordingly, we consider respondent's contentions first.Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Next
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