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corporation on its balance sheet, deposited all partnership
income, and reported the partnership’s income on the corporate
tax returns. Several years later, the partnership was severed
and dissolved. Both the taxpayer and the corporation were
parties to the dissolution agreement, and the corporation
reported all gain from the disposition of the partnership
interest. We held on these facts that the corporation, rather
than the taxpayer, was taxable on the gain from the sale of the
partnership interest.
In Baker, the taxpayer was a partner in a real estate
development partnership. After he encountered financial
problems, he executed a series of promissory notes to a related
corporation as part of an arrangement to sever his business ties
with his partner. The issue we resolved was whether the
promissory notes provided additional basis in the taxpayer’s
partnership interest. We held that they did.
Both Evans and Baker are distinguishable from this case. In
each of those cases, the taxpayer satisfactorily proved that the
transaction in question actually occurred and that it had
economic substance. In addition, the taxpayers and related
entities did not attempt to avoid a tax liability that otherwise
would have been owed by some taxpayer. In the present case, the
P.C. failed to report any partnership income on its 1988 return
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