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recall the following statement from our opinion in Vecchio
v. Commissioner, 103 T.C. 170, 185-186 (1994):
In determining his income tax, a partner
must take into account his "distributive share"
of each item of partnership income, gain, loss,
deduction, and credit. Sec. 702(a). Each
partner is taxed on his distributive share of the
partnership income without regard to whether the
amount is actually distributed to him. Sec.
1.702-1(a), Income Tax Regs.; see also United
States v. Basye, 410 U.S. 441, 453 (1973). A
partner's distributive share of partnership
income or loss is to be determined by the
partnership agreement, provided the allocation
has substantial economic effect. Sec. 704(a).
If the partnership agreement does not provide as
to the partner's distributive share, or if the
partnership agreement provides for an allocation
that does not have substantial economic effect,
then a partner's distributive share is determined
by the partner's "interest in the partnership".
Sec. 704(b). A partner's interest in the
partnership is determined by taking into account
all facts and circumstances. Id.
As suggested above, section 704 provides the framework for
determining a partner's distributive share of partnership
income, gain, loss, deductions, or credits and governs the
allocation of such partnership items. It provides as
follows:
SEC. 704(a). Effect of Partnership
Agreement.--A partner's distributive share of
income, gain, loss, deduction, or credit shall,
except as otherwise provided in this chapter,
be determined by the partnership agreement.
(b) Determination of Distributive Share.--
A partner's distributive share of income, gain,
loss, deduction or credit (or item thereof) shall
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