- 25 -
a substantial amount of the total, at least $700,000,
before the years in issue.
Furthermore, the partnership returns filed by James
report total assets for 1990 through 1993 of $171,769,
$164,956, $166,836, and $200,135, respectively. This is
corroborated by the 1997 State court opinion, which found
that the value of the assets of the partnership was in
approximately the same order of magnitude. Thus, the value
of partnership assets did not approach the total of James'
disproportionately large capital contributions for any of
the years in issue. Accordingly, if the partnership had
been liquidated at any time during the years in issue, all
of the partnership assets would have been distributed to
James. It is evident, therefore, that during each of
the years in issue James bore the economic benefit of 100
percent of the income realized by the partnership. See
sec. 1.704-1(b)(3), Income Tax Regs.
The estate argues that "the state court's determina-
tion that James and Darwin each own a 50 percent interest
in the partnership is applicable for allocation of income
for Federal income tax purposes pursuant to I.R.C.
� 704(b)(1)." In our view, the estate disregards the fact
that under the State court determination profits would be
shared equally only "after the partners are repaid their
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011