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of the taxable year to which the allocation relates with
the manner in which distributions (and contributions)
would be made if all partnership property were sold at
book value and the partnership were liquidated
immediately following the end of the prior taxable year
* * *. A determination made under this paragraph
(b)(3)(iii) will have no force if the economic effect of
valid allocations made in the same manner is
insubstantial under paragraph (b)(2)(iii) of this
section. * * * [Sec. 1.704-1(b)(3)(iii), Income Tax
Regs.]
Both parties rely on the comparative liquidation test to show
their differing schemes.
Respondent asserts that the comparative liquidation test of
section 1.704-1(b)(3)(iii), Income Tax Regs., supports the special
allocation of all partnership income to Mr. Manchester, as set
forth in the FPAA. First, respondent contends that if all of
IHCL’s assets had been sold at the end of 1990, the net liquidation
proceeds would have been $8,958,778. Respondent computes this
amount, using stipulated figures, as follows:
Assets
Cash $7,955,796
Investment in Landmark (1,358,431)
Investment in Gateway 2,328,218
Unamortized organization costs 139,388
Total assets 8,964,971
Liabilities
Accounts payable (6,193)
Total liabilities (6,193)
Net Proceeds 8,958,778
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