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The Partnership would recognize gain on the sale of the
private placement note calculated as follows:
Cash 160.0
Basis 33.3
(1/6 of 200) _____
Gain 126.7
BC's Gain 12.67
FP's Gain 114.03
Total Gain 126.70
BC's share of the gain equals its 10% ownership in the
Partnership for a taxable gain to BC of $12.67 million
in 1990.
Step 4:
In April 1990 or later, (i.e. until there has been some
movement in the value of the contingent note) BC buys
50% of FP's interest in the Partnership for $90
million, assuming that the fmv of the contingent note
is still $40 million. With this purchase, BC's basis
in its Partnership interest is $122.67 million
calculated as follows:
BC's initial investment $20.0 million
Gain 12.67
Purchase of 50% of FP's
interest 90.00
122.67
Step 5:
The Partnership distributes the contingent note to BC
assuming a fmv of $40 million. In addition, the
Partnership would distribute approximately $32.72
million in cash to FP which is the equivalent cash
distribution to FP given its percentage ownership.
Step 6:
BC sells the contingent note for cash. This sale of
the contingent note by BC generates the capital loss.
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