Michael H. Gulley and Paula M. Gulley - Page 15




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          not involve a partnership interest or an interpretation of                     
          section 1398(f).  We disagree.  See Smith v. Commissioner, supra.              
          Thus, the transfer of petitioner’s interest in GSD to the                      
          bankruptcy estate was not a sale or exchange, and did not cause                
          GSD to terminate.  See sec. 1398(f).                                           
          B.   Whether Petitioner Sold or Exchanged His Interest in GSD on               
               July 11, 1991, Under Section 706(c)(2)                                    
               A partnership’s tax year closes with respect to a partner                 
          who sells or exchanges his interest in a partnership, and with                 
          respect to a partner whose interest is liquidated.  See sec.                   
          706(c)(2)(A).  Petitioners contend that petitioner’s bankruptcy                
          caused him to cease being a general partner in GSD under Texas                 
          law, and that his withdrawal from GSD triggered a distribution to              
          him of the fair value of his interest.  See Tex. Rev. Civ. Stat.               
          Ann. art. 6132a-1, secs. 6.02, 6.04 (West 1999).  Thus,                        
          petitioners contend that GSD’s tax year closed as to petitioner                
          under section 706(c)(2) on July 11, 1991.  We disagree.  We                    
          conclude for the reasons stated at paragraph A-2, above, that                  
          petitioner did not sell, exchange, or liquidate his interest in                
          the partnership for purposes of section 706(c)(2)(A) when he                   
          filed the bankruptcy petition.                                                 
          C.   Whether Interest Expense Is Allocated Pro Rata Between                    
               Petitioner and the Bankruptcy Estate Under Section 706(d)                 
               Petitioners contend that, under section 706(d), GSD’s losses              
          for the period from January 1 to July 11, 1991, are allocated to               






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