The petitioners maintain that sections 702(a), 704(a), and 761(c) reveal a legislative purpose to allow partners flexibility in determining inter se the incidents of their tax liability resulting from participation1978 U.S. Tax Ct. LEXIS 54">*69 in a partnership. See H. Rept. 1337, supra at 65; S. Rept. 1622, 44 F.2d 83">supra at 89; Kresser v. Commissioner, 54 T.C. 1621">54 T.C. 1630-1631. More particularly, they argue that partners are permitted to modify the partnership agreement at any time prior to the time for filing a return to shift income and losses among themselves as they see fit, that this principle is applicable irrespective of whether the modification allocates partnership 70 T.C. 1024">*1031 items to a person who was not a partner at the time such items accrued, and that such principle is paramount in determining their tax liability and allows them to alter the restrictions which might otherwise flow from section 706(c)(2). Though the petitioners have presented their argument very forcefully, we are not convinced that it represents a proper reconciliation of the provisions of subchapter K.

Under section 706(c)(2)(A), it is clear that if a partner disposes of his entire interest, the partnership year closes as to such partner at that moment, and he is required to include in his income his distributive share of section 702(a) items for the period he was a partner. The regulations also expressly provide1978 U.S. Tax Ct. LEXIS 54">*70 that in such situation, the transferee partner is required to include in his income his distributive share of partnership items for the period during which he was a member of the partnership. Sec. 1.706-1(c)(2), Income Tax Regs.; Conf. Rept. 2543, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 60-61 (1954). The distributive shares for the transferor and the transferee, so determined, cannot be altered retroactively by a modification of the partnership agreement under section 761(c). Rodman v. Commissioner, 542 F.2d 845">542 F.2d 845, 542 F.2d 845">857 n. 16 (2d Cir. 1976), affg. on this issue a Memorandum Opinion of this Court. Thus, if Mr. Leake had transferred his entire interest to Landmark (rather than each of the Leakes transferring a partial interest to Landmark), it would be clear that Mr. Leake would be required to report his distributive share of Skyline's loss for the period preceding the transfer on December 29, 1972, and that such loss could not be transferred to Landmark by the agreement consummated on that date.

Where a partner sells or exchanges less than his entire interest, section 706(c)(2)(B) requires that the transferor partner determine his distributive1978 U.S. Tax Ct. LEXIS 54">*71 share "by taking into account his varying interests in the partnership during the taxable year." Sec. 1.706-1(c)(4), Income Tax Regs. It follows that the transferee's distributive share must also be determined by taking into account his varying interests in the partnership. See generally H. Rept. 94-658, 1976-3 C.B. (Vol. 2) 695, 815-816; S. Rept. 94-938, 1976-3 C.B. (Vol. 3) 49, 96. Since a partner who transfers his entire interest is required to report his distributive share of partnership items for the period he was a partner and cannot transfer retroactively those items to the transferee, it is 70 T.C. 1024">*1032 reasonable to conclude that Congress intended for the transferor and transferee of a partial interest to determine the variation in their interests in the same manner. There is no reason to believe Congress intended to allow the transferor of a partial interest to assign his distributive share of partnership items occurring before the transfer and deny a similar privilege to the transferor of an entire interest. Consequently, we conclude that when there is a transfer of a partial partnership interest, section 706(c)(2)(B)1978 U.S. Tax Ct. LEXIS 54">*72 requires the transferor to report his distributive share of partnership items for the period before the transfer, requires the transferor and transferee to report their distributive shares of partnership items for the period after the transfer, and prohibits the retroactive shifting of such interests.

Our interpretation of section 706(c)(2)(B) is confirmed by a consideration of the assignment-of-income doctrine. By now, it is axiomatic that income is taxable to him who earns it and that a loss is deductible only by him who suffers it. United States v. Basye, 410 U.S. 441">410 U.S. at 447; Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733, 337 U.S. 733">739-740 (1949); Interstate Transit Lines v. Commissioner, 319 U.S. 590">319 U.S. 590 (1943); Helvering v. Horst, 311 U.S. 112">311 U.S. 112, 311 U.S. 112">116 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435 (1934); Lucas v. Earl, 281 U.S. 111">281 U.S. 111, 281 U.S. 111">114-115 (1930); Calvin v. United States, 354 F.2d 202">354 F.2d 202, 354 F.2d 202">204 (10th Cir. 1965). Just as the assignor of income cannot escape taxation by an anticipatory1978 U.S. Tax Ct. LEXIS 54">*73 assignment thereof, the transferee of losses can gain no tax advantage by the transfer thereof. These fundamental income tax principles have been described "as a cornerstone of our graduated income tax system" ( 410 U.S. 441">United States v. Basye, supra at 450) and as "the first principle of income taxation" ( 337 U.S. 733">Commissioner v. Culbertson, supra at 739). Such principles are applicable in determining whether a partnership exists and whether income is attributable to a partnership enterprise. 410 U.S. 441">United States v. Basye, supra;337 U.S. 733">Commissioner v. Culbertson, supra;Burnet v. Leininger, 285 U.S. 136">285 U.S. 136 (1932). Before the enactment of the provisions of subchapter K, there were some controversies over whether such principles applied to allocations of partnership income and losses among the partners. See, e.g., Hartz v. Commissioner, 170 F.2d 313">170 F.2d 313 (8th Cir. 1948), revg. a Memorandum Opinion of this Court, cert. denied 337 U.S. 959">337 U.S. 959 (1949); Woosley v. Commissioner, 168 F.2d 330">168 F.2d 330 (6th Cir. 1948),1978 U.S. Tax Ct. LEXIS 54">*74 revg. a Memorandum Opinion of this Court; Hellman v. United States, 44 F.2d 83">44 F.2d 83 (Ct. Cl. 1930); 70 T.C. 1024">*1033 Delchamps v. Commissioner, 13 T.C. 281">13 T.C. 281 (1949). By the enactment of sections 702(a), 704(a), and 761(c), Congress made clear that with respect to the income and losses resulting from the operation of the partnership, the partners have broad discretion in allocating such items among themselves. See H. Rept. 1337, supra at 65; S. Rept. 1622, 44 F.2d 83">supra at 89; Kresser v. Commissioner, 54 T.C. 1621">54 T.C. 1630-1631. Yet, there is nothing in such provisions indicating a congressional intent to extend such discretion to purported retroactive assignments to new partners of partnership items arising prior to their entry into the partnership.

Here, the partners in Skyline from January 1, 1972, to December 29, 1972, were Sam and Sarah Leake. Any income earned or loss suffered by the partnership attributable to such period could be passed through to the Leakes at the end of Skyline's taxable year in any proportion chosen by the Leakes under sections 702(a), 704(a), and 761(c), provided the allocation 1978 U.S. Tax Ct. LEXIS 54">*75 could withstand any attack under section 704(b). See Smith v. Commissioner, 331 F.2d 298">331 F.2d 298, 331 F.2d 298">301 (7th Cir. 1964), affg. a Memorandum Opinion of this Court; Foxman v. Commissioner, 41 T.C. 535">41 T.C. 554. The partners in Skyline from December 29, 1972, through December 31, 1972, were the Leakes and Landmark. Similarly, any loss or income attributable to such period could be passed through to the Leakes and Landmark at the end of Skyline's taxable year in the manner agreed upon by them. For each of such periods, the incidents of taxation arising from carrying on a business as a partnership are passed through to persons who were partners at the time such incidents arose.

The same observation cannot be made with respect to the retroactive allocation sought by the petitioners. Landmark was not a member of the partnership when Skyline incurred the loss attributable to January 1, 1972, through December 28, 1972. Landmark was not liable for such loss, and the burden thereof was not retroactively shifted to Landmark by the December 29, 1972, agreement. The entity incurring the loss was Skyline, and any attempt to transfer such loss to1978 U.S. Tax Ct. LEXIS 54">*76 persons who were not members of the partnership during such period violates the assignment-of-income doctrine. As stated by the Supreme Court in New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. at 440-441:

the taxpayer who sustained the loss is the one to whom the deduction shall be allowed. Had there been a purpose to depart from the general policy in that regard, and to make the right to the deduction transferable or available to 70 T.C. 1024">*1034 others than the taxpayer who sustained the loss, it is but reasonable to believe that purpose would have been clearly expressed. And as the section contains nothing which even approaches such an expression, it must be taken as not intended to make such a departure.

The same observations are pertinent in the case now before us. Subchapter K contains no clear expression of the intention to permit a partner to deduct losses which accrued prior to his entry into the partnership. To the contrary, the opposite intent is expressed in section 706(c).

Our conclusions are also supported by the decision of the Second Circuit in Rodman v. Commissioner, 542 F.2d 845">542 F.2d 845 (1976). In that case, a 1978 U.S. Tax Ct. LEXIS 54">*77 calendar-year partnership had four equal partners. On November 2, 1956, one of the partners withdrew from the partnership by selling his interest ratably to the three remaining partners, who, from November 2 to November 5, 1956, each owned a 33 1/3 percent interest in the partnership. On November 5, 1956, a new partner was admitted to the partnership, and from November 5 to December 31, 1956, the partnership interests were owned: by the old partners -- 33 1/3 percent, 22 2/3 percent, and 22 percent, and by the new partner -- 22 percent. On its 1956 partnership return, the partnership reported a loss and allocated a full 22 percent of such loss to the new partner, who included such loss on his tax return. Subsequently, the Commissioner disallowed some of the deductions which comprised the partnership loss for 1956. In particular, a $ 900,000 adjustment to the cost of goods sold caused the partnership to have income for 1956, and the Commissioner allocated 22 percent of such income to the new partner. However, the new partner disputed the allocation, arguing that his interest in partnership income was intended to be prospective only. The Commissioner, on the other hand, argued1978 U.S. Tax Ct. LEXIS 54">*78 that the partnership intended the allocation of income or loss to be for the entire year, and he pointed to the treatment of the loss on the partnership return and on the new partner's individual tax return to support his contention. No consideration was given as to whether a retroactive allocation of partnership income or loss to the new partner was legally permissible under these facts. In an unpublished opinion, this Court sustained the Commissioner's adjustment to inventory, held that the intention of the partners controlled, and approved the retroactive allocation of income. Rodman v. Commissioner, T. C. Memo. 1973-277.

70 T.C. 1024">*1035 On appeal, the Commissioner and the new partner agreed that the Tax Court erred in permitting a retroactive allocation of pre-November 5, 1956, partnership income to the new partner, and the Court of Appeals for the Second Circuit agreed. The Second Circuit found that the attempted retroactive assignment of income was contrary to the express provisions of section 706(c)(2)(B). It was also of the view that although the provisions of subchapter K confer broad latitude on the partners to allocate partnership income1978 U.S. Tax Ct. LEXIS 54">*79 among themselves, the statute does not extend to attempted assignments of preadmission income to new partners, and that such assignments continue to be subject to the assignment-of-income doctrine. The Second Circuit recognized that in 331 F.2d 298">Smith v. Commissioner, supra, the Seventh Circuit approved a retroactive allocation of income between members of an "ongoing" partnership, but it distinguished that case on the ground that Rodman involved an attempted assignment of preadmission income to a new partner.

Finally, we must decide how much of Skyline's loss can be passed through to Landmark. Conceptually, there are several different methods of making such determination: One method involves an interim closing of the partnership books as of the date of the transfer of the partial partnership interest and computing the various items of partnership income and loss as of such date. Another method involves computing partnership income or loss at the end of the partnership year and allocating the yearend totals ratably over the year. See sec. 1.706-1(c)(2), Income Tax Regs. In his statutory notice of deficiency, the Commissioner used the latter method. On1978 U.S. Tax Ct. LEXIS 54">*80 brief, the Commissioner argues that there is no evidence to support a different method of computing the loss. The petitioner, on the other hand, argues for an interim closing of the partnership year. It is the petitioner's contention that $ 27,552.69 of Skyline's loss is based on payments made during the last 3 days of 1972 and that therefore such amount should be passed through to Landmark. In view of our conclusion, we need not decide whether he would be entitled to a loss based on payment, during such period, of liabilities incurred prior to Landmark's entry into the partnership.

In the first place, it is not altogether clear that the payments at issue were in fact made during the last 3 days of 1972. The petitioner relied upon the parties' stipulation that Skyline 70 T.C. 1024">*1036 incurred an ordinary loss of $ 149,323.62 in 1972, and that in computing such loss, Skyline claimed deductions of $ 15,516.31 for real estate taxes, $ 6,960.86 for insurance, and $ 64,135.77 for interest. He urges us to infer that such deductions included a mortgage interest expense of $ 7,195.05, an insurance expense of $ 6,090.49, and a tax expense of $ 14,267.15, and that such amounts were in fact 1978 U.S. Tax Ct. LEXIS 54">*81 paid in 1972. He also pointed to the Skyline bank statement for January 1973, showing that canceled checks for $ 7,195.05 and $ 6,090.49 cleared such account on January 5, 1973. However, such evidence is not sufficient. From the fact that deductions were claimed for taxes, insurance, and interest, we are not justified in concluding that such amounts were in fact paid in 1972, nor are we justified in concluding that the larger amounts included the particular payments at issue. We were given no evidence as to the time required for checks to clear at that time, and we had no supporting evidence with respect to the payment of taxes.

Moreover, if the petitioner wishes to compute his distributive share of partnership income or loss through an interim closing of the partnership books on the date of the transfer, he must show, not only the expenses which are deductible by the partnership during the short period, but must also show what receipts, if any, the partnership had during such short period. Without information as to the receipts of the partnership during the short period, we are totally unable to determine what loss was sustained during such period. Accordingly, the petitioners1978 U.S. Tax Ct. LEXIS 54">*82 have failed to carry their burden of showing that the Commissioner's determination in this respect was incorrect (see Welch v. Helvering, 290 U.S. 111">290 U.S. 111 (1933); Rule 142, Tax Court Rules of Practice and Procedure), and therefore, we sustain the Commissioner's method of computing the amount of loss allowable for the short period.⁶

Decision will be entered under Rule 155.