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progress payments totaling $120x. During 1971, ABC received total
progress payments of $100x and incurred liabilities for total costs
of $80x. The facts stated in the revenue ruling reveal that the
Commissioner allocated a pro rata share of the $80x liabilities for
costs incurred under the contract to the partners for purposes of
determining their adjusted bases in their partnership interests.
On these facts, the Commissioner framed the issue to be addressed
as whether:
the deferred income of 100x dollars as of December 31,
1971 (representing progress payments on the contract),
represents “liabilities of a partnership” within the
meaning of section 752(a) of the Code and, as such,
additions to basis of the partnership interests of the
partners. [Rev. Rul. 73-301, 1973-2 C.B. 216.]
The Commissioner concluded that the progress payments qualified as
“unrealized receivables” under section 751(c), as opposed to
liabilities within the meaning of section 752. In this regard,
the revenue ruling states that “The income or loss from performance
of the contract will affect the basis of the partnership interests
of the partners, as provided in section 705(a), when such income or
loss is recognized for Federal income tax purposes.” Rev. Rul. 73-
301, supra at 216. (Emphasis added.) In sum, the partners were
not permitted to adjust their outside bases with reference to the
$100x in progress payments that the partnership received during
1971 until income or loss from the transaction would be recognized
for tax purposes. However, the Commissioner recognized that the
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