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him under section 721--to Coastal of that interest,11 with the
remaining $500,000 of mortgage loan proceeds being used to
discharge the portion of the transaction expenses and preexisting
liabilities attributable to his 25-percent undivided interest
received from Pecaris and contributed to Coastal.
Under petitioners' view, Pecaris was entitled to use 75
percent of its adjusted basis in the Mall in computing its gain
on the receipt of the reduced purchase price of $3.6 million for
the 75-percent undivided interest that it sold and the
distributive shares of such gain to Messrs. Boyas and Spillas.
Applying petitioners' view, those shares of gain would remain the
same as reported by Pecaris and Messrs. Boyas and Spillas on
their returns, and no part of the Pecaris gain would be allocable
to petitioner. Also, under petitioners' view, the remaining 25
percent of the Pecaris adjusted basis in the Mall is attributable
to the undivided 25-percent interest therein that petitioner
claims was distributed to him by Pecaris and contributed by him
to the capital of Coastal.
11The rationale of allowing nonrecognition treatment to
petitioner under secs. 721 and 731 of the continuation and
expansion of his residual partnership interest in the Mall would
be that he did not liquidate his investment in the Mall but
rather continued it in another form, with a greater proportionate
interest, subject to nonrecourse liabilities that were
substantially increased both proportionately and absolutely.
See sec. 1.1002-1(c), Income Tax Regs.
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