-300-
allocation of 45 percent of the built-in loss with respect to the
SMHC receivables and stock. Shearman & Sterling then provided
the following legal analysis with respect to the transaction:
The Proposed Partnership Transaction should not be
recharacterized under the partnership anti-abuse
regulation because:
(a) Subchapter K, specifically section 704(c) and
the regulations promulgated thereunder, contemplates
and indeed mandates, the tax results set forth above;
and
(b) Although the parties will structure the
Proposed Partnership Transaction to maximize their
after-tax yield, GCo and the Rockport Members will
engage in the joint venture for bona fide commercial
purposes, namely to jointly develop the existing assets
of the Company and GCo, and to invest together on a
continuing basis through the Company.
The memorandum provides no further legal discussion; for example,
there is no discussion as to whether the transaction passes
muster under the economic substance doctrine or the step
transaction doctrine. Moreover, the hypothetical transaction
described in the memorandum differs fundamentally from the
transaction involving the Ackerman group, CDR, Generale Bank, and
CLIS. For instance, the proposed transaction does not
contemplate that any of the partners will exit the partnership,
and it assumes that the joint venture will be for bona fide
commercial purposes.
Shearman & Sterling’s October 10, 1997, memorandum was not
prepared in connection with the filing of SMP’s and Corona’s 1997
or 1998 partnership tax returns. It did not relate to a
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