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partnerships should be viewed as a separate entity, and
consequently, none of any limited partnership’s inventory or LIFO
reserve is deemed to be owned by petitioner or the other partners.
We agree with respondent’s position for the following reasons.
In 1986, Congress enacted the Tax Reform Act of 1986 (TRA),
Pub. L. 99-514, secs. 631-633, 100 Stat. 2085, 2269-2282, which did
away with the General Utilities doctrine. (Under the General
Utilities doctrine, corporations generally had not been taxed on
the distribution of assets whose fair market values exceeded their
tax bases. See Estate of Davis v. Commissioner, 110 T.C. 530, 548
n.13 (1998).) In TRA section 632(a), section 1374 (Tax Imposed on
Certain Built-In Gains) was amended to prevent the potential
circumvention of the corporate level of tax on the distribution of
appreciated (built-in gain) assets by a former C corporation that
held such assets at the time of its conversion to an S
corporation.6 See Rondy, Inc. v. Commissioner, T.C. Memo. 1995-372
(“the original purpose of section 1374 was to support Congress’
repeal of the General Utilities doctrine”); H. Conf. Rept. 99-841
(Vol. II), at II-198 to II-199, II-203 (1986), 1986-3 C.B. (Vol.
4), 1, 198-199, 203.
It became apparent that the goal of section 1374 was not being
achieved with respect to former C corporations that used the LIFO
6 In general, sec. 1374 requires an S corporation to pay
a corporate-level tax on any net recognized built-in gains
recognized within 10 years following the effective date of the S
election.
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