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Before taking into account any of PKVI LP’s losses, the IRS
determined that PK Ventures’ basis in its PKVI LP interest was
zero as of December 31, 1991. With respect to 1991, the IRS
notified PKV&S that PKVI LP was subject to partnership-level
proceedings pursuant to the partnership audit and litigation
procedures of sections 6221 through 6233. Consequently, the IRS
removed the amounts that PKV&S had reported as PK Ventures’
distributive shares of PKVI LP’s loss and cancellation of
indebtedness income from PKV&S’s taxable income for that year.
The IRS made these adjustments pursuant to Munro v. Commissioner,
92 T.C. 71 (1989). PKV&S’s taxable income for 1991 was not
affected as a result of these adjustments.
Before taking into account any of PKVI LP’s losses, the IRS
determined that PK Ventures’ basis in its PKVI LP interest was
zero as of December 31, 1992, and zero as of December 31, 1993.
Consequently, the IRS did not allow PKV&S to deduct any of
PKVI LP’s losses during those years. The IRS increased PKV&S’s
taxable income by $251,921 for 1992 and by $212,893 for 1993.
The Roses’ Share of PKVI LP’s Items of Income and Loss
A. As Reported on Rose’s Schedules K-1
The following items were listed on Rose’s Schedules K-1 that
were attached to PKVI LP’s Forms 1065 for 1986 through 1993:
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