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that Melvin and Russell agreed to report all items of BBP equally
for Federal income tax purposes. The brothers adhered to this
agreement throughout the existence of the partnership, and the
evidence in the record reflects that neither brother objected to
the arrangement. There is no evidence to indicate that either
Melvin or Russell was attempting to divide profits and apportion
losses solely to avoid undesirable tax consequences. Mr.
Feldmann, who regularly prepared BBP’s partnership returns as
well as Melvin’s and Russell’s individual returns, testified that
it was his understanding that Melvin and Russell had an oral
agreement that they were equal partners in BBP and they each had
50-percent distributive shares. After considering all the facts
and circumstances relating to the economic arrangement of Melvin
and Russell, including the four factors listed in section 1.704-
1(b)(3)(ii), Income Tax Regs., we conclude that each partner had
a 50-percent interest in BBP. Accordingly, the gain from the
sale of grain in 1994 must be allocated equally between the
estate and Russell.
C. Whether the Estate Can Avoid Reporting Grain Sales
Income in 1994 If Russell Received the Entire Grain Sales
Income Under a Claim of Right
The estate argues that all the gain from the sale of grain
in 1994 is attributable to Russell because he received it under a
claim of right and without any restriction on his right to
dispose of the income. The estate cites Estate of Kahr v.
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