Saba Partnership, Brunswick Corporation, Tax Matters Partnership - Page 2




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               Income Tax Regs., 46 Fed. Reg. 10711 (Feb. 4, 1981),                   
               the partnerships applied one-sixth of their bases in                   
               the PPNs and CDs in computing their "gains" on the                     
               sales of the PPNs and CDs.  Due to a large disparity in                
               the partners' initial capital contributions to the                     
               partnerships, ABN was allocated 90 percent of the                      
               "gains" on the sales of the PPNs and CDs.  As a foreign                
               entity, ABN's distributive share of the partnerships'                  
               "gains" was not subject to U.S. income tax.                            
               Following the close of the partnerships' first                         
               taxable year, ABN's interests in the partnerships were                 
               reduced through direct purchases by B and redemptions                  
               by the partnerships.  S and O subsequently distributed                 
               cash to ABN and the LIBOR notes to B.  B sold the LIBOR                
               notes for cash.  Relying on the ratable basis recovery                 
               rules under sec. 15A.453-1(c), Temporary Income Tax                    
               Regs., supra, B allocated the remaining bases in the                   
               PPNs and CDs in computing its "losses" on the sales of                 
               the LIBOR notes.  For the taxable years ending 1990 and                
               1991, B reported capital losses of $142,953,624 and                    
               $32,631,287, respectively.                                             
                    Held:  The disputed transactions were not                         
               motivated by legitimate non-tax business purposes and                  
               were not imbued with objective economic substance.                     
               Held, further, the disputed transactions are shams that                
               will not be respected for Federal income tax purposes.                 
               Held, further, the partnerships' income for the years                  
               in issue does not include interest earned on the PPNs                  
               and CDs.  Held, further, the partnerships are entitled                 
               to deductions for certain organizational expenses                      
               subject to the limitations contained in sec. 709(b),                   
               I.R.C.                                                                 

               Joel V. Williamson, Thomas C. Durham, Daniel A. Dumezich,              
          Clisson S. Rexford, Gary S. Colton, Jr., Stuart E. Thiel, Neil B.           
          Posner, and Judith P. Zelisko, for petitioner.                              
               Jill A. Frisch, Karen P. Wright, Lewis R. Mandel, and                  
          Theresa G. McQueeney, for respondent.                                       







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