Michael V. Domulewicz and Mary Ann Domulewicz - Page 7




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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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