Opinion ID: 411284
Heading Depth: 1
Heading Rank: 4

Heading: deductibility to existing partners of losses disallowed to new partners.

Text: Richardson argues that if we affirm the Tax Court's holding denying to the newly admitted partners deductions for pre-admission losses, then he and the other original partners should be allowed to deduct these losses, lest they drop through the crack, thereby benefiting no one. The Tax Court held that Richardson was not entitled to deduct the losses in any of the partnerships because his adjusted basis in his partnership interest at the close of the taxable year (December 31, 1974) was inadequate to support the deduction. That decision is undeniably correct. I.R.C. Sec. 704(d) 10 places a ceiling on the amount of loss a partner can claim as his share of the total partnership losses for the year; his loss is limited to his adjusted basis at the end of the partnership year in which such loss occurred. Richardson argues that the partnership's year should be deemed to have closed on December 30, 1974, the day before the new partners were admitted. The argument is based on the notion that if the taxable year is to be, in effect, segmented for purposes of determining the respective amounts of losses allocable to existing and newly admitted partners, then logic demands that the partners' respective adjusted bases, the limiting factor on the availability of deductions, be similarly segmented. Richardson's position is, however, directly contravened by I.R.C. Sec. 706(c)(1) 11 which states that the taxable year of a partnership shall not close as the result of ... the entry of a new partner .... We affirm, therefore, the Tax Court's ruling denying to Richardson a deduction for the losses disallowed to the newly admitted partners. AFFIRMED. 1 Doris C. Richardson, Mary Ann Schneider and Martha J. Rice are parties to this proceeding only by virtue of having filed joint returns with their husbands 2 Marriott v. Commissioner, 73 T.C. 1129 (1980); Moore v. Commissioner, 70 T.C. 1024 (1978) 3 All statutory references are to the Internal Revenue Code of 1954, as in effect during 1974, unless otherwise indicated