- 5 - Petitioners’ Federal income tax return for 1987, the only year petitioner did legal work for Finley Kumble clients, reported a distributive share of partnership income that was substantially exceeded by the partnership draws he actually received from Finley Kumble during that year. Finley Kumble announced its dissolution late in 1987 and was declared bankrupt early the next year without petitioner’s having made any capital contribution to the firm. Respondent has explained that under the closing agreement between the IRS and the Finley Kumble bankruptcy trustee that concluded the Finley Kumble partnership-level TEFRA proceeding, COD income was allocated to petitioner and all other partners using a two-step process. After taking into account the capital contribution of $15,000 that petitioner was required to make in the Finley Kumble bankruptcy proceeding, over 10 years, with interest at 10 percent, including the present value of the future interest payments on the deferred installments thereof, petitioner still had a negative capital account of $26,099. In the first step of the COD income allocation, petitioner was allocated $26,099 of COD income to reduce his negative capital account to zero. Finley Kumble’s remaining COD income, after accounting for step-one COD income allocations to petitioner and other partners with negative capital accounts, was $26,580,484. In the second step, Finley Kumble allocated the remaining CODPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011