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the reference in section 706(d)(1) to a “change in any partner’s
interest” is properly interpreted as a reference to those events
articulated in section 706(c)(2). In short, section 706(d)(1)
assumes the occurrence of a triggering event; it does not provide
for one.
Thus, contrary to petitioners’ assertions, the determination
of whether section 706(d)(1) requires the subdivision of a
partner’s distributive share between the partner individually and
the partner’s bankruptcy estate cannot be made with reference to
section 706(d)(1) alone. Rather, it must first be determined
whether a transfer from a debtor to his bankruptcy estate
pursuant to 11 U.S.C. sec. 541(a)(1) constitutes a triggering
event under section 706(c)(2).
To the extent Mr. Katz’ partnership interests were affected
by the filing of his chapter 7 bankruptcy petition, they were
completely terminated. Accordingly, the relevant provision of
section 706(c)(2) is subparagraph (A), which addresses
dispositions of an entire partnership interest. The
determination of whether the transfer of Mr. Katz’ partnership
interests to his bankruptcy estate constitutes a sale, exchange,
or liquidation under section 706(c)(2)(A) is rather
straightforward. Section 1398(f)(1) dictates that the transfer
of property from a debtor to his bankruptcy estate which occurs
by reason of the bankruptcy filing shall not be treated as a
disposition for purposes of any provision of the Internal Revenue
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