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distributive share of the partnership’s taxable income or loss.
Sec. 702(a)(8). As a general rule, a partner’s distributive
share of income, gain, loss, deduction, or credit is determined
by the partnership agreement. Sec. 704(a).
Section 1.702-1(a), Income Tax Regs., provides: “Each
partner is required to take into account separately in his return
his distributive share, whether or not distributed, of each class
or item of partnership income”. (Emphasis added.) “Few
principles of partnership taxation are more firmly established
than that no matter the reason for nondistribution each partner
must pay taxes on his distributive share.” United States v.
Basye, 410 U.S. 441, 454 (1973). “The tax is thus imposed upon
the partner’s proportionate share of the net income of the
partnership, and the fact that it may not be currently
distributable, whether by agreement of the parties or operation
of law, is not material.” Heiner v. Mellon, 304 U.S. 271, 281
(1938); see also First Mechs. Bank v. Commissioner, 91 F.2d 275,
279 (3d Cir. 1937) (holding that a partner’s share of partnership
income was taxable to him for the year in which the income was
realized by the partnership even though not distributed to the
partner in that year); Chama v. Commissioner, T.C. Memo. 2001-253
(holding that a partner was taxable on his share of partnership
gain even though not distributed to him but instead reinvested by
the partnership); Johnston v. Commissioner, T.C. Memo. 1984-374
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Last modified: May 25, 2011