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adjusted basis of all the property transferred, the excess is
treated as gain from the sale or exchange of the property
transferred. Kanter admittedly was attempting to avoid section
357(c) by transferring eight artificial notes receivable in a
total amount to offset exactly the aggregate negative capital
accounts of the partnership interests. These artificial
receivables do not constitute bona fide assets in which the
trusts had any basis. Accordingly, the amount of the liabilities
assumed ($476,889) is treated as gain on the sale or exchange of
the property transferred and therefore is taxable to Kanter as
the deemed owner of the trusts.
The second part of respondent's adjustment ($378,800)
relates to Kanter's use of the installment sale method to report
gain from his grantor trusts' sale of stock.
The Cashmere stock was sold to Waco in an installment sale
on July 12, 1983. The terms of the sale provided for the
payments to be made to the trusts from January 15, 1984, through
July 11, 1993. Waco subsequently resold the stock to Equity
Financial on September 2, 1983, clearly within 2 years of its
purchase from the trusts and almost 10 years prior to the date
the final balloon payments were scheduled to be made in
connection with the initial installment sale.
Section 453(e)(1) provides that if a person sells property
to a related party (the first disposition) under the installment
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