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purpose of the contribution rules is “to facilitate the flow of
property from individuals to partnerships that will use the
property productively.”).
In Wilkinson v. Commissioner, 49 T.C. 4 (1967), the
taxpayers were obligees on installment notes made by their own
corporation. They wished to liquidate the corporation. Doing
so, however, would have caused a deemed disposition of the notes
(because the obligor and obligee on the notes would then be
merged) and would have triggered tax on the deferred gains in the
notes. In an attempt to avoid this result, the taxpayers hit
upon a scheme: they would first assign the notes to a
partnership in which they were members; then, after their
corporation was liquidated, the partnership could assign the
notes back to them. Under section 721, they would recognize no
gain on the transfer to the partnership; under section 731, there
would be no tax on the partership’s reassigning the notes to
them. In fact, there would never be any tax to anyone: “the
installment obligations would simply vanish for tax purposes.”
Wilkinson v. Commissioner, supra at 12. This Court observed:
“We cannot believe that a hurriedly organized tour through
sections 721 and 731 could yield such an absurd result.” Id. We
reasoned that “the transparent device of making a formal
assignment * * * to the partnership” was not controlling. Id. at
10. Instead, after examining the “realities” of the transaction,
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