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sec. 1.301-1(b), Income Tax Regs.; see also R&T Developers, Inc.
v. Commissioner, T.C. Memo. 1973-128; Gurtman v. United States,
237 F. Supp. 533, 537-538 (D.N.J. 1965), affd. per curiam on
other issues 353 F.2d 212 (3d Cir. 1965).
Issue #2--Transfers From PK Ventures, TBPC, and TPTC to PKVI LP
Approximately two-thirds ($1,096,250 out of $1,516,246)
transferred from PK Ventures and its subsidiaries to PKVI LP was
transferred during 1986 through 1990. An FPAA was issued to
PKVI LP only for 1991. PKVI LP was a partnership subject to the
provisions of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA), partially codified at secs. 6221-6233. The parties
agree that the characterization of transfers from a partner to a
TEFRA partnership as debt or equity is a “partnership item” that
can be adjusted only upon issuance of an FPAA. See sec.
301.6231(a)(3)-1(a)(4), 301-6231(a)(3)-1(c)(2)(i), Proced. &
Admin. Regs. In the absence of a valid FPAA for a particular
year, neither respondent nor the Court may adjust partnership
items for that year. See generally Maxwell v. Commissioner, 87
T.C. 783, 788-789 (1986).
For 1991, however, in the FPAA sent to PKVI LP, respondent
disallowed interest expense in the amount of $100,661 because it
had not been established that the interest expense was
attributable to a bona fide debt. Thus, in determining whether
that interest expense deduction is allowable, we have found facts
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