-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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