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deficiency for 1989 and 1990. For those years, the treatment of
Zephyr’s liabilities was an S corporation item, to be determined
at the corporate level. See sec. 301.6245-1T(a)(5), Temporary
Income Tax Regs., 52 Fed. Reg. 3003 (Jan. 30, 1987). (For years
beginning after December 31, 1996, these procedures do not apply.
See Small Business Job Protection Act of 1996, Pub. L. 104-188,
110 Stat. 1755.) Because no notice of administrative adjustment
(FSAA) was issued to Zephyr, the nature of the transfers as
reported by Zephyr cannot be redetermined here.
Issues #4 and #5–-Partners’ Basis in PKVI LP
Generally, a partner may deduct the partner’s distributive
share of losses of a partnership in which the partner is a
member. Sec. 702(a). A partner’s distributive share of
partnership loss is limited to the extent of the adjusted basis
(before reduction by current year’s losses) of the partner’s
interest in the partnership at the end of the partnership year in
which such loss occurred. Sec. 704(d); sec. 1.704-1(d)(1),
Income Tax Regs. A partner’s share of loss in excess of the
partner’s adjusted basis at the end of the partnership year will
not be allowed for that year. Sec. 1.704-1(d)(1), Income Tax
Regs. Any excess of such loss over such basis shall be allowed
as a deduction at the end of the partnership year in which such
excess is repaid to the partnership. Sec. 704(d); see also sec.
1.704-1(d)(1), Income Tax Regs. (“[A]ny loss so disallowed shall
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