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1992, leaving a corrected net short-term capital gain of $334,214.
Petitioner filed a timely petition for readjustment contesting the
FPAA.
OPINION
Salina computed its short-term capital gain for its taxable
year ended December 31, 1992, pursuant to a complex set of tax
basis adjustment provisions contained in subchapter K, Partners and
Partnerships, of subtitle A of the Internal Revenue Code (the
Code). We begin our analysis with a review of the statutory
provisions in question.
Pursuant to sections 701 and 702, a partnership is treated as
a flow-through entity for purposes of Federal income taxation. See
United States v. Basye, 410 U.S. 441, 448 (1973); Brannen v.
Commissioner, 722 F.2d 695, 703-704 (11th Cir. 1984), affg. 78 T.C.
471 (1982). As such, a partnership’s items of income, gain, loss,
deduction, and credit pass through the entity to its individual
partners. Consequently, although respondent adjusted Salina’s
partnership return by substantially reducing the amount of the net
short-term capital gain reported for the period ended December 31,
1992, the ultimate impact of this adjustment is to substantially
reduce FPL’s distributive share of the gain, which in turn nearly
eliminates the ordinary losses that FPL reported on its tax returns
for 1994, 1995, 1996, and 1997.
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