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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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