- 13 - interest over 10 years, which still left him with a negative capital account. As a general rule, absent an agreement to the contrary, a partner will be liable to a partnership to the extent of such partner’s negative capital account balance upon dissolution of the partnership. See sec. 1.704-1(b)(2)(ii)(b)(3), (c), Income Tax Regs. For tax and accounting purposes, Finley Kumble first allocated COD income to petitioner and other partners to reduce their negative capital accounts and then allocated the remaining COD income to petitioner and all other partners in proportion to their contributions to the partnership under the bankruptcy plan. The restoration of the balance of petitioner’s negative capital account was accomplished by the first-step allocation of the partnership’s COD income resulting from the discharge of its debts in the bankruptcy proceeding; the second-step allocation allocated the remaining COD income to petitioner and the other partners in proportion to their capital contributions. All in all, the partnership-level TEFRA proceeding seems to have led to a sensible tax result insofar as petitioner is concerned. In 1987, petitioner realized tax benefits from Finley Kumble in the form of losses that reduced his distributive share of partnership income to less than his actual distributions received, which was a contributing factor in causing his capitalPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
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