- 9 - Corporation for the assumption of the Partnership’s liabilities, the amount of which was treated as equaling the Partnership's tax basis in the assets. The transaction was not structured as a taxable distribution of partnership assets to the partners followed by a contribution of the assets to the Corporation with a stepped-up tax bases. Petitioners have given us no sufficient justification for recasting the transaction. Even if the value of the Partnership assets that were transferred to the Corporation exceeded the liabilities of the Partnership that were assumed by the Corporation, even if Partnership “equity” was transferred to the Corporation, and even if the Corporation owed additional amounts to the Partnership, such excess value, equity, or amounts would not increase the tax bases of the shareholders in the Corporation. As explained in Frankel v. Commissioner, 61 T.C. 343, 348 (1973) (involving the predecessor to section 1366)-- The existence of the partnership cannot be ignored here even though the partners were simultaneously shareholders in the subchapter S corporation. If the partners had directly * * * [transferred funds] to the subchapter S corporation or treated it as an addition to capital, the result would be different. The distinctions that exist between partnerships, sole proprietorships, and corporations do so from a tax viewpoint by design. To treat the partnership * * * [transfer] as having been made directly by the partners would be to deliberately obfuscate the distinction where no such action is called for. [Citations omitted.]Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
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