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unless there are specific provisions for nonrecognition.
Respondent determined that petitioners understated their
capital gain from the sale of Glenwood by $10,635. The increased
capital gain results, in part, from respondent’s characterizing a
$29,788.59 check from Glenwood to petitioner as a distribution
which reduced petitioner’s basis in Glenwood to zero. The issue
before us is purely factual.
Petitioners argue that the $29,788.59 was a distribution to
Hammontree from Glenwood and, in turn, a payment to petitioner in
exchange for Hammontree’s acquisition of a 50-percent interest in
Glenwood from petitioner. We agree with petitioner. In 1988
petitioner and Hammontree agreed that Hammontree would use funds
from a retirement account to become a 50-percent partner in
Glenwood. However, Hammontree was unable to draw from the
account. Thereafter, it was understood that Hammontree would run
the business and take a salary and that petitioner’s one-half
interest in Glenwood would be paid for from Hammontree’s profit
and/or salary from the partnership. Glenwood’s Federal income
tax returns for 1988 and short year 1989 reflect a 50-50
partnership. Early in 1989, however, Glenwood was incorporated,
the partnership was discontinued, petitioner and Hammontree
became equal shareholders, and petitioner had not been paid for
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