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approach, which recognizes a partnership as an entity separate and
distinct from its partners, is reflected in part in section 703(a),
which provides that items of income, gain, loss, deduction, and
credit are determined at the entity or partnership level. The
aggregate approach, which recognizes a partnership as an aggregate
of its partners, is reflected through provisions such as sections
701 and 702, which provide that partnership items are passed
through the partnership to its individual partners for purposes of
imposing income tax. See United States v. Basye, 410 U.S. 441, 448
(1973).
In an effort to avoid distortions in income tax reporting
associated with the blending of the entity and aggregate approaches
within subchapter K, Congress enacted a number of provisions that
generally are intended to equate the aggregate of the partnership’s
inside bases in its assets with the aggregate of its partners’
outside bases in their partnership interests. See 1 McKee et al.,
Federal Taxation of Partnerships and Partners, par. 6.01, at 6-3
(3d ed. 1997) (McKee). The carryover-basis rules contained in
section 722, which provide that a partner’s basis in his
partnership interest equals the amount of money plus the adjusted
basis of property contributed to a partnership, generally results
in a matching of inside and outside bases upon the formation of a
partnership. See Coloman v. Commissioner, 540 F.2d 427, 429 (5th
Cir. 1976), affg. T.C. Memo. 1974-78. Similarly, adjustments to
basis prescribed under section 705(a) to account for income and
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