- 12 -
franchise could have only occurred indirectly. In order for the
section 1056 language to literally apply here, respondent must,
in some manner, ignore the partnership as an entity. Respondent
makes two separate arguments in support of the section 1056
determination. First, respondent argues that the sale of the
partnership interest constituted a sale of the partnership's
underlying assets if the aggregate theory of partnerships is
employed. Respondent's second argument poses a theoretical sale
or exchange to address that section 1056 requirement. Respondent
contends that the sale of a partnership interest causes a
constructive partnership termination resulting in a deemed
distribution of partnership property and a deemed contribution of
the property to a new partnership. Under respondent's second
argument, the deemed distribution and contribution are
hypothesized to be the section 1056 "sale or exchange" of the
partnership's property.8
We note that respondent does not contend that the Bowlen I
partnership is a sham or should be disregarded because it had
been created to avoid the application of section 1056. In
addition, respondent does not argue that Bowlen acquired the
assets of Bowlen I in a two-step transaction over the 1984-85
period. We agree with petitioner and hold that there was no
8 Respondent, in the second argument, alternatively attempts
to address how a "sale or exchange" could occur even if we were
to hold that sec. 1056 should be applied to subch. K transactions
under the entity theory.
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