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Income Tax Regs. Prior to the deemed distribution, the bases of
Bowlen I's assets would be adjusted to reflect their fair market
values under section 743(b) based on the assumption that the
mandatory basis adjustment of section 732(d) applied.10 Upon the
deemed distribution, Bowlen I would use the fair market values of
the assets to allocate Bowlen’s and Adams' bases in their
partnership interests among the partnership assets pursuant to
section 732(c) basis allocation rules. Bowlen I followed the
above-outlined statutory process and did not consider the amount
of gain that the selling partner (Kaiser or his wholly owned
corporation) may have recognized on the player contracts or the
terminated partnership's presale basis in the contracts in
determining the contracts' basis. Therefore, Bowlen I's basis in
the player contracts was determined without reference to the
section 1056(a) basis limitation requirements.
A. Respondent's First Argument--Section 1056 If Applied to a
Subchapter K Transaction Using the Aggregate Approach to
Partnerships Would Result in a "sale or exchange" of a Sports
Franchise and Player Contracts Within the Meaning of That Section
Section 1056(a) specifically applies to a "sale or exchange"
of a sports franchise. There is no reference to indirect
transfers of sports franchises through intermediate entities,
10 Respondent challenges whether Bowlen I was entitled to
adjust the assets to their fair market values and use the fair
market values to allocate bases among the assets under the
partnership provisions. Respondent argues that Bowlen I should
have allocated bases among its assets in proportion to the
terminated partnership's presale adjusted basis in the assets.
This matter is addressed later in the opinion.
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