## Facts

- George Crawford owned a one-fourth interest in Venempa Investment Co., a partnership.
- The partners dissolved the partnership and distributed its assets to the partners, primarily securities and other investment property rather than cash.
- For tax year 1932, Crawford did not claim a loss deduction related to the liquidation on his return.
- After Crawford’s death, his estate claimed an overpayment, asserting a deductible loss because Crawford’s basis in his partnership interest allegedly exceeded the fair market value of the property received on liquidation.
- The Commissioner refused to allow the asserted liquidation loss, and the estate petitioned the Board of Tax Appeals.

## Issues

1. Whether a partner realizes and may deduct a loss upon partnership liquidation merely because the fair market value of distributed property is less than the partner’s basis in the partnership interest.
2. Whether, instead, any loss remains unrecognized at liquidation and is reflected in the basis of the distributed property until a later taxable disposition.

## Decision

- The Board of Tax Appeals ruled for the Commissioner.
- The Board rejected the estate’s claim that the basis-to-fair-market-value disparity at liquidation created a currently deductible loss.
- The Board sustained the Commissioner’s determination, defeating the estate’s overpayment/refund claim.

## Legal Principles

- A liquidating distribution of partnership property does not, by itself, establish a recognized loss equal to the difference between the partner’s basis in the partnership interest and the property’s fair market value at distribution.
- A decline in value of distributed property is generally not deductible absent a taxable realization event; a change from an indirect partnership interest to direct ownership of the assets may not constitute such an event.
- Basis rules aim to preserve unrecognized gain or loss in the basis of property received, with recognition typically occurring upon a later sale or other taxable disposition.
- In a refund-type claim, the taxpayer bears the burden to prove entitlement to the deduction and the necessary factual predicates (including basis and valuation), and to show the Commissioner’s position is erroneous under the governing statute.

## Conclusion

The Board held that partnership liquidation and distribution of depreciated property did not permit an immediate loss deduction based solely on the gap between the partner’s basis in the partnership interest and the distributed property’s fair market value, and it therefore sustained the Commissioner and denied the estate’s overpayment claim.


Crawford v. Commissioner, 39 B.T.A. 521 (1939)