Rodney J. Blonien and Noreen E. Blonien - Page 5

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          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 COD               






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