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• Profits, losses and credits -- after considering
Mr. Hoyt’s share -- are allocated strictly on the
basis of capital account. This means that each
partner’s interest in the credits, profits and/or
loss is calculated annually by comparing the
partner’s capital account to the aggregate of the
capital accounts of all partners in the
partnership.
For purposes of computing a partner’s capital
account, all partners are entitled to include
their share of partnership debt for which they
assumed personal liability, until they liquidate
their interest in the partnership.
• Any partner having a capital account below zero
has a basis in the partnership below zero.
Pursuant to, and in accordance with, the settlement
agreement and our opinion in Shorthorn Genetic Engg. 1982-2, Ltd.
v. Commissioner, T.C. Memo. 1996-515, the capital account of
petitioner and Mr. Capehart was recomputed, and computational
adjustments were made to the distributive shares of Hoyt
partnership losses claimed by petitioner and Mr. Capehart,
resulting in deficiencies for each of the years at issue. The
adjustments were primarily attributable to the Hoyt
organization’s having sold more cattle to the various Hoyt
limited partnerships than it actually owned, see id., having
overvalued some of the cattle sold to the Hoyt limited
partnership, see Mora v. Commissioner, 117 T.C. 279, 292 (2001),
and having failed to properly account for income generated by the
sale of calves in calculating partnership losses, see Bales v.
Commissioner, T.C. Memo. 1989-568.
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