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nontaxable into one that is taxable. Here, Mr. Coggin sought the
advice of tax professionals–-both accountants and tax attorneys.
The legal opinion rendered by the law firm that Mr. Coggin engaged
did not address LIFO recapture. The talking points paper prepared
by KPMG set forth the potential risk of LIFO recapture, as well as
a calculation of the potential tax liability, if section 1363(d)
applied. Specifically, the document stated:
LIFO inventory should not be recaptured on conversion of
COIC [Coggin-O’Steen Investment Corp.] from a C
corporation to an S corporation since COIC does not
inventory any goods under the LIFO method for its last
tax year as a C corporation (I.R.C. section 1363(d))
(some degree of IRS risk which is being reviewed by our
Washington National Tax practice).
But notably, the paper did not address the tax benefits of avoiding
the LIFO recapture.
To conclude this aspect of our opinion, we find that the 1993
restructuring was: (1) A genuine multiple-party transaction with
economic substance; (2) compelled by business realties, imbued with
tax-independent considerations; and (3) not shaped solely by tax
avoidance features. Cf. Frank Lyon Co. v. United States, supra.
Consequently, we reject respondent’s primary position that there
was no tax-independent business purpose for the 1993 restructuring.
We now turn our attention to respondent’s alternative position.
For tax purposes, a partnership may be viewed either (1) as an
aggregation of its partners, each of whom directly owns an interest
in the partnership’s assets and operations, or (2) as a separate
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