Coggin Automotive Corporation - Page 2

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               its dealership to a limited partnership in exchange for                
               a limited partnership interest.  Following the transfer                
               of assets to the limited partnerships, the subsidiaries                
               were liquidated. As a result, P obtained the                           
               subsidiaries’ limited partnership interests.                           
                    R determined that pursuant to sec. 1363(d), I.R.C.,               
               P’s conversion to an S corporation triggered the                       
               inclusion of the affiliated group’s pre-S-election LIFO                
               reserves ($5,077,808) into P’s income.  R’s primary                    
               position was that the restructuring should be disregarded              
               because it had no tax-independent purpose. R                           
               alternatively maintained that under the aggregate                      
               approach to partnerships, a pro rata share ($4,792,372)                
               of the pre-S-election LIFO reserves was attributable to                
                    Held:  The restructuring was a genuine multiple-                  
               party transaction with economic substance, compelled by                
               business realities and imbued with tax-independent                     
               considerations.  The restructuring was not shaped solely               
               by tax avoidance features.  Consequently, R’s primary                  
               position that there was no tax-independent business                    
               purpose for the restructuring is rejected.                             
                    Held, further:  The aggregate approach (as opposed                
               to the entity approach) to partnerships better serves the              
               underlying purpose and scope of sec. 1363(d), I.R.C.                   
               Accordingly, P is deemed to own a pro rata share of the                
               partnerships’ inventories of automobiles and light                     
               trucks.  Consequently, upon its election of S corporation              
               status, P was required to include $4,792,372 in its gross              
               income as its ratable share of the LIFO recapture amount.              

               Sheldon M. Kay and Robert L. LoRay, for petitioner.                    
               James P. Dawson and Julius Gonzalez, for respondent.                   

               JACOBS, Judge: Respondent determined deficiencies in                   
          petitioner’s Federal income taxes as follows:                               

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