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of $156,30040 and that petitioner realized a gain of $60,709 from
the exchange in 1986.41
Petitioner contends that he and Mr. McLaughlin were partners
in a partnership with respect to the properties, that the Angel-
Royse Property was distributed to him from the partnership, and
that this distribution did not result in the recognition of any
gain under section 731(a)(1).42 Respondent argues that section
731(a)(1) does not apply because: (1) There was no distribution
from a partnership to a partner; petitioner simply exchanged his
100-percent interest in the Arrowhead Lakes Subdivision lots for
Mr. McLaughlin’s 50-percent interest in the Angel-Royse Property;
and (2) no partnership existed.
In order for petitioner’s partnership argument to work, that
supposed partnership would have had to own both the Angel-Royse
40Value of Mr. McLaughlin’s interest in the Angel-Royse
Property ($156,300) = fair market value of the Angel-Royse
Property ($312,600) x Mr. McLaughlin’s interest (50 percent).
41Amount realized ($101,009) = value of Mr. McLaughlin’s
interest in the Angel-Royse Property ($156,300) + discharge by
Mr. McLaughlin of petitioner’s debt ($15,250) + assumption by Mr.
McLaughlin of real estate taxes ($1,251) - petitioner’s
assumption of Mr. McLaughlin’s share of the liabilities
associated with the Angel-Royse Property ($68,622) - property
taxes ($3,170). Gain on exchange ($60,709) = amount realized
($101,009) - basis ($40,300).
42Sec. 731(a)(1) provides that in the case of a distribution
by a partnership to a partner “gain shall not be recognized to
such partner, except to the extent that any money distributed
exceeds the adjusted basis of such partner’s interest in the
partnership immediately before the distribution”.
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