Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 20

                                        -109-                                         
          credit.79  Sec. 702(a); Vecchio v. Commissioner, 103 T.C. 170,              
          185 (1994).  A partner’s distributive share of partnership loss             
          (including capital loss) is allowed only to the extent of the               
          partner’s adjusted basis in his or her partnership interest at              
          the end of the partnership taxable year in which the loss                   
          occurred.  Sec. 704(d); Oden v. Commissioner, T.C. Memo. 1981-              
          184, affd. without published opinion 679 F.2d 885 (4th Cir.                 
          1982).                                                                      
               Generally, when property is contributed to a partnership in            
          exchange for a partnership interest, neither the partnership nor            
          any of its partners recognize gain or loss.  Sec. 721(a).  The              
          partner’s basis in a partnership interest acquired by a                     
          contribution of property to the partnership is the amount of any            
          money contributed plus the contributing partner’s adjusted basis            
          in other contributed property at the time of the contribution               
          (“outside basis”).  Sec. 722.  Similarly, the partnership’s basis           
          in property contributed to a partnership by a partner is the                


               79 A partner’s distributive share is generally determined by           
          reference to the partnership agreement; however, if the                     
          allocations in the partnership do not have “substantial economic            
          effect” (as determined under sec. 704 and the regulations), those           
          allocations are disregarded.  See Estate of Ballantyne v.                   
          Commissioner, 341 F.3d 802, 805 (8th Cir. 2003), affg. T.C. Memo.           
          2002-160.  If the partnership agreement provides no allocation or           
          the allocations provided therein lack substantial economic                  
          effect, a partner’s distributive share of partnership items shall           
          be determined in accordance with the partner’s interest in the              
          partnership (determined by taking into account all facts and                
          circumstances).  Sec. 704(b).                                               





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