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for the years of the transfers. With respect to 1991, however,
we have determined the character of those transfers and have
jurisdiction to do so as a result of respondent’s disallowance of
imputed interest expense in the FPAA issued for 1991.
Petitioners argue that respondent did not specifically
recharacterize the transfers in the FPAA and that respondent
waived any adjustments other than interest expense based on
recharacterization of those transfers and is precluded from
raising them in this proceeding. Respondent argues that the
Court does have jurisdiction to resolve the character of the
transfers for all of the years but acknowledges that the tax
effects of our conclusions require separate analysis. The nature
of the transfers was tried by consent and was the predominant
issue during trial and in the briefs of the parties. Thus,
transfers during 1991 should be regarded as equity contributions
to PKVI LP in the calculation of the partners’ basis, but
transfers prior to and subsequent to 1991 shall be treated for
basis purposes consistent with reporting on PKVI LP’s returns.
Similarly, any other adjustments over which we have no
jurisdiction should not be included in the basis calculations for
purposes of this case.
Issue #6–-The Roses’ Basis in Their Zephyr Interest
An S corporation’s income, losses, and deductions are passed
through pro rata to its shareholders. See sec. 1366(a). The
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