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partnership under section 733 and by his distributive share of
partnership losses for the tax year and prior years. Section 733
provides that, in the case of a distribution by a partnership to
a partner other than in liquidation of a partner’s interest, the
adjusted basis of the partner is reduced by the amount of money
distributed to that partner. Additionally, any decrease in a
partner’s share of the liabilities of a partnership is considered
a distribution of money to the partner by the partnership. Sec.
752(b).
Respondent claims that BBP maintained inadequate accounting
records and that there is no direct evidence establishing each
partner’s basis in BBP. Respondent argues that in a situation
such as this one, it is appropriate to apply the alternative rule
set forth in the regulations under section 705 to determine
Russell’s adjusted basis in his partnership interest.
Section 705(b) grants the Secretary the authority to
prescribe regulations under which the adjusted basis of a
partner’s interest in a partnership may be determined by
reference to his proportionate share of the adjusted basis of
partnership property upon a termination of the partnership.
Section 1.705-1(b), Income Tax Regs., provides that “the adjusted
basis of a partner’s interest in a partnership may be determined
by reference to the partner’s share of the adjusted basis of
partnership property which would be distributable upon
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