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Partnerships 460 (1968). GSD, petitioner, Schlesinger, and
Sunbelt litigated the Federal suit until September 1992. Thus,
GSD was winding up when petitioner filed his petition in
bankruptcy on July 11, 1991. We conclude that GSD continued to
exist for tax purposes until it settled the pending Sunbelt
litigation in September 1992.
2. Whether GSD Terminated on July 11, 1991, Under Section
708(b)(1)(B)
A partnership terminates for tax purposes if there is a sale
or exchange of 50 percent or more of the total interest in
partnership capital and profits. See sec. 708(b)(1)(B).
Petitioner owned 66.67 percent of the interests in capital
and profits of GSD. When petitioner filed the petition in
bankruptcy, the bankruptcy estate succeeded to the tax attributes
of petitioner’s interest in GSD. See sec. 1398(b)(2), (g).
Petitioners contend that petitioner should be treated as having
sold or exchanged 50 percent or more of his interest in GSD when
the bankruptcy estate succeeded to his interest in GSD.
We disagree that petitioner sold or exchanged his
partnership interest when he filed his petition in bankruptcy. A
transfer of a partnership interest from a debtor to the debtor’s
bankruptcy estate is not a sale, exchange, or liquidation of the
partner’s interest under section 706(c). See sec. 1398(f);
Smith v. Commissioner, T.C. Memo. 1995-406. Petitioners contend
that Smith supports petitioners’ arguments, and that Smith did
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