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Case Analysis : Morton And Adrienne Goldfine

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FACTS

Morton and Adrienne Goldfine were a husband and wife living in Peoria, Illinois who filed this case in 1983. The case dealt with the taxable years of 1972 and 1973, for which the Goldfines filed joint federal income tax returns. Morton Goldfine was a practicing attorney making between $100,000 and $150,000 a year. Richard Blackard was the president and sole shareholder of Blackard Construction Company, an Illinois housing construction company. Blackard purchased 112 acres of farm land in Decatur, Illinois for the purposes of building single-family and multi-unit residences called the Yorkshire apartments (Yorkshire). In the process of constructing the residences, Blackard incurred substantial debts and encountered cash flow …show more content…

The losses, including depreciation, were reallocated prior to the filing of this case.

ISSUES

• Whether certain allocations of partnership income, gain, loss, deductions, and credits have substantial economic effect and whether that has any impact on the partners’ distributive shares.

RULES

IRC §702(a) emphasizes that partners must report their distributive shares of partnership income. §704(a) says that the partnership agreement determines the partner’s distributive shares of income, gain, loss, deductions, and credits, pursuant to the limitations set forth in §704(b). Such limitations were calculated and phrased in terms of the “tax avoidance test” prior to 1976. This test stated that allocations of income, gain, loss, deductions, or credits would be disregarded if the principal purpose for said allocations was tax avoidance per §704(b)(2). In 1976, a new “substantial economic effect” test was adopted in 1976 to determine the limitations relating to a partner’s distributive share. §702(a)(9) requires an allocation of bottom line income or loss to have economic substance that reflects the actual division of such items when viewed from an economic rather than a tax viewpoint. Regulation §1.704-1(b)(2) states that in determining whether a special allocation has a principal purpose of avoidance or evasion of Federal income tax, a facts and circumstances test must be considered. Such a test involves asking a series of questions

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