- 87 -
PKV&S reported the following amounts with respect to PK Ventures’
and/or its subsidiaries’ interests in PKVI LP on its consolidated
income tax returns for 1987 through 1993:
Income (Loss) Cancellation of
Year from PKVI LP Bad Debts Indebtedness Income
1986 ($1,323) -– -–
1987 (2,036) -– --
1988 (18,515) -– -–
1989 (26,497) -– —-
1990 (124,687) -- --
1991 (181,271) $1,516,246 $454,874
1992 (251,921) -– --
1993 (212,893) -– --
C. IRS Determinations
The IRS determined that PKV&S could deduct PK Ventures’
distributive share of PKVI LP’s losses for 1990, 1991, 1992, and
1993 to the extent of PK Ventures’ basis in its PKVI LP interest.
Before taking into account any of PKVI LP’s losses, the IRS
determined that PK Ventures’ basis in its PKVI LP interest was
$114,936 as of December 31, 1990. The IRS determined this amount
by subtracting the amount of PKVI LP’s losses that PKV&S deducted
in 1986, 1987, 1988, and 1989 from the cash advances that it
determined that PK Ventures had made to PKVI LP in 1990 and prior
years and the capital contribution that it determined that
PK Ventures had made to PKVI LP in 1988. The IRS allowed as a
deduction against this basis $114,936 of PK Ventures’
distributive share of PKVI LP’s losses for 1990. Accordingly,
the IRS increased PKV&S’s taxable income by $9,751 for 1990.
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