Sennett v. Commissioner
United States Court of Appeals for the Ninth Circuit
752 F.2d 428 (1985)
- Written by Heather Whittemore, JD
Facts
William Sennett (plaintiff) became a partner in Professional Properties Partnership (the partnership) in 1967. In 1968 Sennett left the partnership. Sennett and the partnership agreed that the partnership would pay Sennett $240,000 to account for his interest in the partnership and Sennett would pay the partnership approximately $109,000, his share of the partnership’s losses. The partnership and Sennett paid each other their respective amounts in 1969. On his 1969 income-tax return, Sennett reported a long-term gain of $240,000 and an ordinary loss of $109,000. Sennett reported the loss according to a loss-carryover provision in § 704(d) of the Internal Revenue Code, which allowed a partner in a partnership to deduct his share of the partnership’s loss over the adjusted basis of the partner’s interest. The Commissioner of Internal Revenue (the Commissioner) (defendant) disallowed the deduction because Sennett was not a partner in the partnership in 1969. Instead, the Commissioner argued that the loss should have been factored into Sennett’s calculation of his long-term capital gain. Using the Commissioner’s formula, Sennett should have subtracted the loss from his gain and reported a total long-term capital gain of $131,000. The United States Tax Court agreed with the Commissioner. Sennett appealed.
Rule of Law
Issue
Holding and Reasoning (Per curiam)
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