Dakotah Hills Offices Limited Partnership, An Arizona Limited Partnership, William M. and Dianne B. Stephens, Tax Matters Partner, et al. - Page 16

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          collateral for the partnerships' liabilities, the limited                   
          partners, accordingly, secured, pursuant to section 752(a), an              
          increase in the basis of their interests in the partnerships                
          equal to the amounts of those notes.                                        
               In the Settlement Agreement, the investors were, in essence,           
          relieved of personal liability with respect to their interests in           
          the partnerships and in the investor notes.  When Admiral                   
          satisfied the partnerships' obligations to the lenders, the                 
          partnerships were under obligation to Admiral.  Correspondingly,            
          Admiral acquired all interest in the investor notes, and, for all           
          practical purposes, became the holder in due course of the                  
          investor notes.  Admiral, therefore, became a creditor of the               
          partnerships, and an asset of the partnership (the investor                 
          notes) was acquired by Admiral as collateral for the                        
          partnerships' indebtedness to Admiral.                                      
               Petitioners contend that, subsequent to the Settlement                 
          Agreement, the partnerships still possessed "legal muniment of              
          title" in the investor notes.  In that vein, petitioners assert             
          that Admiral was simply the "equitable owner" of the investor               
          notes.  Petitioners argue, in essence, that while the Settlement            
          Agreement may have extinguished Admiral's security interest in              
          the investor notes, the partnerships still retained and held                
          interest in the investor notes as assets.                                   
               The partnerships, however, did not possess any rights with             
          respect to the outstanding investor notes.  Petitioners disregard           




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