- 32 -
plus gain recognized by the transferor on the contracts.
Accordingly, respondent's position requires both the selling
partner (Kaiser) and the terminated partnership to be treated as
the transferor for purposes of section 1056 on the deemed
distribution.
The section 708 regulations provide that the deemed
distribution is from the terminated partnership. Sec. 1.708-
1(b)(1)(iv), Income Tax Regs. The normal rule is that a
partnership does not recognize gain on a liquidating distribution
to a partner. See sec. 732(a). Consequently, if only the
terminated partnership was treated as the transferor for purposes
of section 1056(a), a buying partner would be limited to the
partnership's presale basis in the contracts even if the selling
partner recognized gain from the player contracts. Respondent
does not seek that result.
For Kaiser to be the transferor (seller) on the deemed
distribution, however, the aggregate partnership theory would
need to be employed. Consistent with our prior discussion, the
aggregate theory of partnership would not be appropriate for
purposes of section 1056. Respondent's argument that a section
1056 "sale or exchange" occurs on a deemed distribution and
recontribution requires treating the partnership as an aggregate
of its partners. Accordingly, we conclude that a partnership
distribution does not constitute a sale or exchange of the
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