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determining his or her income tax, a partner must take into
account his "distributive share" of each item of partnership
income, gain, loss, deduction, and credit. Sec. 702. Each
partner is taxed on his distributive share of partnership income
without regard to whether the income is actually distributed to
him. Sec. 1.702-1(a), Income Tax Regs. Section 722 provides
that the basis of a partnership interest acquired by contribution
of money or other property to a partnership is the amount of such
money, and the adjusted basis of such property, increased by any
gain recognized under section 721(b) to the contributing partner
at such time.
A partner's basis of his partnership interest is subject to
adjustments. In particular, a partner's share of liabilities of
the partnership are included in computing the partner's tax basis
of his partnership interest. Cf. Crane v. Commissioner, 331 U.S.
1 (1947).
Section 752(a) provides that any increase in a partner's
share of the liabilities of a partnership, or any increase in a
partner's individual liability by reason of the assumption by
such partner of partnership liabilities, shall be considered a
contribution of money by such partner to the partnership. This
contribution results in an increase in the partner's basis of his
partnership interest. Sec. 722.
Section 752(b) provides that any decrease in a partner's
share of the liabilities of a partnership, or any decrease in a
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Last modified: May 25, 2011