U.S. Tax Court Memorandum Decision Upholds IRS Disallowance in Partnership Basis Case Due to Illogical Calculations

The U.S. Tax Court ruled that the taxpayer, a partnership formed by two brothers, incorrectly calculated its section 743(b) basis adjustment, thereby upholding the IRS’s disallowance of the claimed deduction. The partnership, involved in developing land, used the completed contract method to defer profits from sales. After arbitration, the brothers restructured the partnership, creating financing companies and engaging in estate planning that involved transferring interests to family members, resulting in technical terminations of tiered partnerships. They claimed a basis adjustment under IRC §743(b), which the IRS disallowed on the final return. The court found the taxpayer’s calculation illogical, noting a ...