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enter the LLC; they were negotiating to exit the LLC.
The ultimate fact to be drawn from that unfavorable
assumption is that CLIS and GB never intended to be,
and never in fact were, true partners. If the
participation of CLIS and GB as partners in the
transaction is ignored, then Rockport would be deemed
to have purchased the stock and debt from GB and CLIS
on December 31 rather than the Preferred Interests, and
such stock and debt would then be considered to have
been contributed to the LLC at a basis equal to the
purchase price to Rockport paid to CLIS and GB rather
than the $1.7 billion. In other words, CLIS’s and GB’s
transitory ownership of LLC member interests would be
disregarded.
Mr. Levinton then examined whether the partnership antiabuse
regulation or the step transaction doctrine would apply to
disregard Generale Bank’s and CLIS’s contributions to SMP and
recast the transactions as a direct sale of the high-basis
receivables and SMHC stock. Mr. Levinton concluded that these
legal theories would not apply because: (1) Generale Bank and
CLIS intended to become members of SMP and to remain participants
in a film venture; (2) it was only an extraneous and unforeseen
circumstance that caused Generale Bank and CLIS to exercise their
put rights; (3) Generale Bank and CLIS had no immediate intention
to sell their preferred interests to Rockport or anyone else; and
(4) the relationships created through the contributions of debt
and stock were bona fide and not undertaken in a manner designed
to shift a tax loss to, or create a tax loss for, a U.S.
taxpayer.212
212 Mr. Levinton examined, in great detail, Esmark &
(continued...)
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