Dynadeck Rotary Systems, LTD. - Page 5




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               On July 8, 1994, the Partnership filed its 1991 and 1992               
          Federal partnership information returns with the Commissioner.              
          Those returns did not report any liabilities of the Partnership             
          for the related years.                                                      
                                     Discussion                                       
               Section 752(a) allows partners to increase their bases in a            
          partnership by an increase in their share of partnership                    
          liabilities.  See also sec. 1.752-1(b), Income Tax Regs.                    
          Respondent determined that the Partnership had no debt during               
          1991 or 1992 that would allow the partners to increase their                
          bases under section 752.  Petitioner argues that the $400,000               
          owed to LAG was a Partnership debt that increased each partner’s            
          basis in the Partnership during 1991 and 1992.  Petitioner                  
          acknowledges that LAG transferred the $400,000 directly to the              
          Corporation and that the promissory note listed the Corporation             
          as the obligor but asserts that the Corporation received the                
          $400,000 as the Partnership’s agent.                                        
               We disagree with petitioner that the partners may increase             
          their bases in the Partnership to reflect the $400,000 debt.  The           
          facts of this case do not establish that the Partnership was ever           
          liable to repay any of that amount.  The sole evidence that we              
          find in the record as to a debtor/creditor relationship is the              
          promissory note which provides clearly that the Corporation owed            
          the money to LAG.  The note says nothing, nor is there evidence,            





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