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It has been determined that the discharge
of liability on the partners’ capital contribu-
tion notes in 1989 resulted in a partnership
distribution pursuant to Internal Revenue Code
Section 752(b).
A more detailed description of respondent’s determi-
nation is set forth in the Form 4605-A, Examination
Changes--Partnerships, Fiduciaries, S Corporations, and
Interest Charge Domestic International Sales Corporations,
dated January 26, 1993, that was prepared by the revenue
agent who audited Dakotah Hills and the other limited
partnerships. In this opinion, we refer to this form as
the RAR.
According to the RAR, each of the 14 limited partners
of Dakotah Hills who joined the Settlement Agreement was
relieved of the obligation of paying his or her “capital
contribution note” and, in effect, was relieved of
liability for a portion of the partnership’s nonrecourse
debt. According to the RAR, this decrease in each
partner’s share of partnership liabilities is a
constructive distribution of money, pursuant to section
752(b). The RAR describes the effect of the constructive
distribution to the investors, as follows:
After considering the discharge of their
capital contribution notes, Investors had no
out of pocket capital contribution and no further
obligation to make any future capital
contribution. Therefore, after following the
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