8
1996 Schedule K-1, allocating to each withdrawing partner an
amount classified as a guaranteed payment equal to the deficit
capital account; i.e., Parson was allocated $30,823; Handler
$186,740;6 Sargent $85,470; Tilton $46,138; and Hahn $96,351.
On March 10, 2003, respondent issued an FPAA for 1996 to
Maged F. Riad as tax matters partner for W&R. Respondent
disallowed the deduction for guaranteed payments, determining W&R
failed to substantiate that guaranteed payments were incurred or
paid in 1996 or that the amounts were deductible as ordinary and
necessary expenses under section 162. In the alternative,
respondent determined that Hahn, Handler, Parson, Sargent, and
Tilton received taxable guaranteed payments in 1996 consistent
with the treatment accorded in the partnership return.
On May 27, 2003, petitioner filed with the Court a Petition
for Readjustment of Partnership Items Under Code Section 6226
praying that the Court: (1) “determine that petitioner filed a
partnership return for 1996 which correctly and accurately
5(...continued)
respondent to be guaranteed payments.
6 The $1 difference between the calculated capital account
and the amount deducted will be attributed to rounding. Handler
reported a $137,074 long-term capital gain on Schedule D, Capital
Gains and Losses, in his 1996 Federal tax return as “liquidation
of p’ship interest” and paid the applicable tax. His calculation
of the deficit in his capital account differed from W&R’s. The
treatment of the transaction by other withdrawing partners is not
in the record.
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