- 22 - the loss disallowance rules prescribed in section 1.1502-20, Income Tax Regs., are invalid. After reporting $337,343,455 as its distributive share of Salina’s net short-term capital gain for the period December 28 through 31, 1992, FPL added that amount to its original capital investment in Salina ($73,890,327) to arrive at a total outside basis in the partnership of $411,804,596. FPL later adjusted its basis to account for its distributive share of Salina’s items of income and expense for the taxable years 1993 and 1994, as well as the value of the cash and mortgaged-backed securities that Salina distributed to FPL in liquidation of its interest in November 1994. As of November 30, 1994, FPL claimed an adjusted tax basis in Salina of $339,631,665, which it allocated to the mortgage-backed securities. As FPL received payments on the mortgage-backed securities during 1994, 1995, 1996, and 1997, FPL reported ordinary losses (determined by computing the excess of its basis in those assets over the amount realized) in the amounts of $1,101,833, $14,107,759, $212,280,777, and $112,000,000, respectively. V. FPAA As previously stated, respondent issued an FPAA setting forth adjustments to Salina’s partnership return for the period ending December 31, 1992. Relying on alternative theories, respondent disallowed $343,900,151 of the $344,234,365 net short-term capital gain that Salina reported for the taxable year ending December 31,Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Next
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