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interest was not transferred on January 12, 1989. In fact, on
that date the parties had not yet decided which option would be
exercised. There is insufficient evidence to alter our
construction of the unambiguous terms of the agreement.
In the alternative, petitioner contends that he did not
receive any distributions after January 12, 1989, and, therefore,
any allocation to him of partnership income accrued after that
date lacks substantial economic effect. We disagree.
The substantial economic effect requirement involves a two-
part analysis: the allocation must be found to have economic
effect, and such economic effect must be substantial. Sec.
1.704-1(b)(2)(i), Income Tax Regs. In order for an allocation to
have economic effect, it must be consistent with the underlying
economic arrangement of the partners. Sec. 1.704-1(b)(2)(ii)(a),
Income Tax Regs. Although the partnership did not make any
actual distributions to petitioner, Smith, or Fowler in 1989 and
1990, its income was used to make payments relating to the $20
million loan. Pursuant to section 752(b), the partnership is
deemed to have made distributions to all partners liable for such
loan. Sec. 752(b); sec. 1.702-1(a), Income Tax Regs.; United
States v. Basye, 410 U.S. 441, 453 (1973). In 1989, all of the
partners were liable for the loan, and petitioner was liable for
the loan until at least April of 1990. Thus, in 1989 and 1990
petitioner received an economic benefit consistent with the
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