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Section 465 does not affect either the amount of a partner’s
distributive share of partnership loss that the partner is
otherwise allowed to deduct under section 704(d) or the
adjustment that must be made to the basis of the partner’s
interest in the partnership under section 705(a)(2)(A) as a
result of that loss deduction. See, e.g., Allen v. Commissioner,
T.C. Memo. 1988-166. If the amount of partnership loss that a
partner is allowed to deduct under section 704(d) exceeds the
amount for which the partner is at risk under section 465,
however, such excess is subject to the carryover provisions of
section 465(a)(2). See, e.g., id. Section 465(a)(2) provides
that this excess amount shall be carried over to succeeding
years. These losses will be deductible when the taxpayer injects
more funds into the activity. Id.
In these cases, the parties dispute whether PK Ventures had
sufficient basis in its PKVI LP interest during 1990, 1991, 1992,
and 1993 to deduct the losses that it claimed from PKVI LP on
PKV&S’s consolidated income tax returns for those years and
whether the Roses had sufficient basis in their PKVI LP interest
during 1990, 1991, 1992, 1993, 1994, and 1995 to deduct the
losses that they claimed from PKVI LP on their joint Federal
income tax returns for those years. The parties also dispute
whether PK Ventures and the Roses are limited by the “at risk”
rules of section 465 with respect to these loss deductions.
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