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petitioner has failed to refute respondent's determination that
this allocation did not comport with the partners' interests.
The third factor, i.e., dealing with cash-flow, is addressed
in paragraph 5.1 of the Second Amendment to the IHCL Restated
Agreement. It provides that partnership cash will be distributed
first to pay off any special loans (there apparently were none),
then to the partners to the extent of capital contributed, and then
to the partners pro rata. Here, THEI has made no capital
contribution. Nor has THEI received any cash. And its potential
pro rata receipt of cash from the partnership is too attenuated for
us to consider.
We have already seen that the fourth factor, i.e., the right
to capital on distribution, favors Mr. Manchester, who had the only
positive capital account.
In summary, this analysis of the "facts and circumstances"
factors does not support petitioner's position that 99 percent of
IHCL's net income for the period at issue is properly allocated to
THEI.
II. Vecchio v. Commissioner
Petitioner asserts that this Court has specifically approved
the allocation of partnership income to repay negative capital
accounts in Vecchio v. Commissioner, 103 T.C. 170 (1994). But
Vecchio is not a blanket approval of allocations to offset any
negative capital account. The present case materially differs from
Vecchio. Here, THEI was always subject to the provision in the
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