## Facts

- Robert B. Weiss, a real estate developer, formed a general partnership with David Hillman, Martin Thaler, and Melvin Lenkin to purchase and operate the Hawaiian Village Motel in Tampa.
- The partnership agreement allocated 50% of profits and losses to Weiss and 50% collectively to the other partners.
- The partnership entered a separate management agreement under which Weiss’s corporation would manage the motel for a fee tied to gross income, with a monthly draw.
- The partnership agreement provided that Weiss would forfeit his partnership interest if he failed to advance requested capital or if the management agreement was terminated under specified conditions.
- The partnership financed the acquisition with a bank loan reportedly guaranteed jointly and severally by all four partners.
- The motel performed poorly and required additional capital; when a capital call was made, Weiss did not contribute his share.
- Under the partnership agreement, the other partners acquired Weiss’s partnership interest and continued operating the motel without him.
- Weiss and his wife claimed partnership-loss deductions on their 1979 federal return, treating Weiss as still bearing partnership liabilities.
- The IRS issued a notice of deficiency disallowing the deductions on the theory that Weiss’s termination as a partner relieved him of partnership liabilities, reducing his basis; the Tax Court sustained the deficiency.

## Issues

1. Whether Weiss, after forfeiting his partnership interest, remained legally liable on partnership loan obligations he had guaranteed.
2. If Weiss remained liable, whether the associated liabilities could still be included in his basis (and at-risk amount) for purposes of deducting partnership losses.

## Decision

- The Eleventh Circuit held that the Tax Court erred in determining Weiss no longer remained liable for partnership liabilities.
- The court remanded to the Tax Court for further proceedings consistent with the appellate opinion, including reconsideration of the deficiency in light of Weiss’s continuing liability.

## Legal Principles

- Termination or forfeiture of a partnership interest does not, by itself, discharge a taxpayer’s pre-existing legal obligations on partnership debt.
- For loss-deduction analysis, continued legal liability on partnership obligations (including guaranteed debt), rather than current partner status alone, controls whether liabilities remain attributable to the taxpayer for basis and related determinations.
- A court must separately analyze (a) changes in ownership or partner status and (b) whether the taxpayer has been released or discharged from debt obligations under applicable law.

## Conclusion

The Eleventh Circuit rejected the Tax Court’s assumption that Weiss’s loss of his partnership interest automatically ended his responsibility for partnership debt, and it remanded for reconsideration of the deficiency based on whether Weiss remained liable on the guaranteed obligations and thus could account for those liabilities in determining allowable loss deductions.


Weiss v. Comm’r, 956 F.2d 242 (11th Cir. 1992)