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$293,997 as of December 31, 1991. The IRS determined that the
Roses recognized this amount of constructive dividends as a
result of the transfers from PK Ventures, TBPC, and TPTC to
PKVI LP during 1991. The IRS included a note stating that this
basis computation “will need to be adjusted if the level of
constructive dividends shown in Adjustment H are [sic] changed.”
As discussed above, the IRS notified the Roses that PKVI LP was
subject to partnership-level proceedings pursuant to the
partnership audit and litigation procedures of sections 6221
through 6233 with respect to 1991. Consequently, the IRS removed
the amounts that had been reported as the Roses’ distributive
share of PKVI LP’s losses and cancellation of indebtedness income
from the Roses’ taxable income for 1991. After making these
adjustments, the IRS determined that the Roses could deduct the
balance of their distributive share of PKVI LP’s losses for 1990,
$178,161. Because the balance of the Roses’ distributive share
of PKVI LP’s losses for 1990 was $53,111 less than the amount of
PKVI LP’s losses that the Roses claimed on their joint income tax
return for 1991 (after removal of the Roses’ distributive share
of PKVI LP’s losses for 1991 from that amount), the IRS increased
the Roses’ taxable income by $53,111 for 1991.
Before taking into account any of PKVI LP’s losses, the IRS
determined that the Roses’ basis in their PKVI LP interest was
$335,448 as of December 31, 1992. The IRS determined that this
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