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Section 706(c)(1) provides the general rule that a
partnership’s taxable year shall not close upon the sale or
exchange of a partner’s interest in the partnership except, among
other events, in the case of a termination of the partnership.
Section 708(b)(1)(B) provides that a partnership shall be
considered terminated if, within a 12-month period, there is a sale
or exchange of 50 percent or more of the total interest in the
partnership’s capital and profits. See P.D.B. Sports, Ltd. v.
Commissioner, 109 T.C. 423, 431-432 (1997). Relying upon section
708(b)(1)(B), Salina concluded that FPL’s purchase of a 98-percent
partnership interest caused a technical termination of the
partnership on December 27, 1992.
The regulations underlying section 708 provide special rules
governing the deemed distribution of partnership assets in the
event of a partnership termination. Specifically, section 1.708-
1(b)(1)(iv), Income Tax Regs., provides in pertinent part:
(iv) If a partnership is terminated by a sale or
exchange of an interest, the following is deemed to
occur: The partnership distributes its properties to the
purchaser and the other remaining partners in proportion
to their respective interests in the partnership
properties; and, immediately thereafter, the purchaser
and the other remaining partners contribute the
properties to a new partnership, either for the
continuation of the business or for its dissolution and
winding up.
Following a deemed distribution pursuant to section 1.708-
1(b)(1)(iv), Income Tax Regs., section 732(b) provides:
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