Wayne M. and Janet L. Johnson - Page 7

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          of $3,313,241 for the 1994 taxable year.  Of these amounts,                 
          $723,240 consists of claimed losses related to petitioner's                 
          interests in two subchapter C corporations.  We shall decide                
          whether petitioners are entitled to a partnership loss carryover            
          in the amount of $2,590,001 in 1994.                                        
               Section 6001 requires that a taxpayer liable for any tax               
          shall maintain such records, render such statements, make such              
          returns, and comply with such regulations as the Secretary may              
          from time to time prescribe.  To be entitled to a deduction,                
          therefore, a taxpayer is required to substantiate the deduction             
          through the maintenance of books and records.                               
               Petitioner has not established that the entities in question           
          incurred a loss in 1992, or any other year.  At most, petitioner            
          has established that the partnership entities defaulted on the              
          debt in the amount of $2,590,001 in 1992.  Even if petitioner had           
          established that the partnerships had incurred a loss, petitioner           
          would not be entitled to a flow-through loss deduction as                   
          petitioner has not established his bases in his partnership                 
               The determination of a partner’s basis in his or her                   
          partnership interest must be made before a partner can deduct his           
          or her share of partnership losses because losses cannot reduce a           
          partner’s basis below zero.  See sec. 704(d); Sennett v.                    
          Commissioner, 80 T.C. 825, 829 (1983), affd. 752 F.2d 428 (9th              

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