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capital loss of $2,278. DIP reported as to the claimed loss that
the 4,500 shares were purchased on August 11, 1999, at a cost of
$10,893 and were sold for $8,615. On August 24, 1999, petitioner
transferred his interest in DIP to DII, which had been
incorporated approximately 8 months earlier. Petitioner and DII
reported that transfer as a nontaxable exchange under section
351, and DII claimed a carryover basis in the transferred
partnership interest equal to petitioner’s basis in DIP. As a
result of this transfer (and similar contemporaneous transfers
made by DIP’s two other partners), DIP dissolved and all of its
assets, including the remaining 3,000 shares of INVI stock, were
distributed and received by DII. On DIP’s 1999 (final) Form
1065, U.S. Partnership Return of Income, DIP reported for that
year that it had realized (1) $1,961 in income, all from tax-
exempt interest, and (2) a $110,611 short-term capital loss
attributable to the sale of U.S. Treasury notes ($108,333) and
the sale of the 4,500 shares of INVI stock ($2,278). DIP also
reported that it had paid $167,477 of interest expenses on
investment debts and that it had distributed $30,447,106 in cash
and/or marketable securities to its partners. Petitioner, as a
general partner of DIP, filed DIP’s 1999 return no later than
April 17, 2000.
At the time of DIP’s dissolution, DIP’s only assets were the
INVI stock and minimal cash. Pursuant to section 732(b), DII
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Last modified: November 10, 2007