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amount had been advanced to PKVI LP on behalf of the Roses during
1992. The IRS allowed as a deduction against this basis $98,782
of the Roses’ distributive share of PKVI LP’s losses for 1992.
Accordingly, the IRS increased the Roses’ taxable income by
$909,963 for 1992.
Before taking into account any of PKVI LP’s losses, the IRS
determined that the Roses’ basis in their PKVI LP interest was
$242,073 as of December 31, 1993. The IRS determined that this
amount had been advanced to PKVI LP on behalf of the Roses during
1993. The IRS allowed as a deduction against this basis $242,073
of the Roses’ balance of their distributive share of PKVI LP’s
losses for 1992. Accordingly, the IRS increased the Roses’
taxable income by $447,693 for 1993.
Before taking into account any of PKVI LP’s losses, the IRS
determined that the Roses’ basis in their PKVI LP interest was
zero as of December 31, 1994, and zero as of December 31, 1995.
Consequently, the IRS did not allow the Roses to deduct any of
PKVI LP’s losses during those years. The IRS increased the
Roses’ taxable income by $373,590 for 1994 and $679,795 for 1995.
The Roses’ Share of Zephyr’s Items of Income and Loss
A. As Reported on Rose’s Schedules K-1
The following items were listed as Rose’s pro rata share of
Zephyr’s items of income, loss, and deduction on Rose’s
Schedules K-1, Shareholder’s Share of Income, Credits,
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