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is allocated.” Sec. 1.704-1(b)(3)(i), Income Tax Regs. All
facts and circumstances relating to the economic arrangement of
the partners are taken into account. Id. The following factors
are considered relevant in determining a partner’s interest in
the partnership: (1) The partners’ relative contributions to
capital; (2) the partners’ interests in economic profits and
losses; (3) the partners’ interests in cashflow and other
nonliquidating distributions; and (4) the rights of the partners
to distributions of capital upon liquidation of the partnership.
Sec. 1.704-1(b)(3)(ii), Income Tax Regs.
The first factor to consider is the partners’ relative
contributions to capital. Melvin and Russell formed BBP in 1943,
and the partnership became involved in an oil and gas activity
and a farming activity. In general, Melvin paid the expenses
related to the oil and gas activity, while Russell did the same
with respect to the farming activity. Many of the assets used by
BBP in its activities were not held in the partnership’s name.
Rather, these assets were either jointly owned by Russell and
Melvin or individually owned by one of them. During its
existence, BBP did not maintain a general ledger, a balance
sheet, a sales journal, or a purchases journal. BBP did not
always maintain a cash disbursements journal or a cash receipts
journal. Partnership capital accounts for BBP were never
maintained. A calculation of each partner’s capital
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