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partners were entitled to increase their outside bases by a pro
rata share of the $80x of liabilities for construction costs that
the partnership incurred in 1971 in generating the progress
payments.
In Helmer v. Commissioner, supra, the taxpayers were partners
in a partnership that had entered into an agreement granting a
third party an option to purchase real estate in which the
partnership held a two-thirds interest. During the term of the
option agreement, the partnership retained the right to possess and
enjoy profits from the property in question, and there was no
provision in the option agreement for repayment of the amounts paid
under the agreement should the agreement terminate.
During the years in issue, the taxpayers received payments
directly from the third party pursuant to the option agreement--
amounts that the partnership listed as distributions to the
taxpayers on its books and tax returns. During the years in issue,
the taxpayers received partnership distributions, and had the
partnership pay personal expenses, in excess of their adjusted
bases in the partnership. The Commissioner determined that,
although the option payments qualified as deferred income at the
partnership level, the taxpayers nevertheless were subject to
income tax to the extent that they had received distributions from
the partnership in excess of their adjusted bases in their
partnership interests. In response, the taxpayers argued that
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