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assets of the partnerships. In essence, petitioners contend that
the investor notes did not result in an increase, pursuant to
section 752(a), in the basis of their partnership interests.
Additionally, petitioners evidently assert that Admiral was the
"equitable owner" of the investor notes, and that, the
partnerships were the owners de jure of the aforementioned notes.
In other words, petitioners argue that Admiral was not the
ultimate creditor. Also, petitioners argue that since there was
no actual distribution of money, there was no section 752(b)
distribution. We agree with respondent.
The financing arrangements in the instant case rendered each
limited partner liable with respect to the recourse liabilities
of the partnerships up to and including the amount of that
limited partner's note in the event of default by the partnership
on such liabilities. Moreover, at the inception of the
partnerships, the limited partners were aware that their investor
notes (held by the partnerships as assets) would be converted
into and applied as collateral by the partnerships.
Specifically, the limited partners executed security agreements
which conveyed to the respective partnerships security interests
in the investor notes.
As noted, the partnerships held the investor notes as assets
which were utilized as collateral for loans in connection with
real estate acquisitions. In particular, the partnerships
assigned their security interests in the investor notes to the
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