-390-
sustain respondent’s determination that Kanter realized a long-
term capital gain as a result of the Cashmere transaction.
A taxpayer generally recognizes gain or loss on a sale or
exchange of property. Sec. 1001(c). Section 351(a) provides an
exception to the general rule of section 1001(c), however, when a
taxpayer transfers an appreciated asset (such as a partnership
interest) to a controlled corporation solely in exchange for the
corporation’s stock. The favorable tax benefits associated with
section 351 are subject to several qualifying provisions outlined
below.
As a general rule, if a taxpayer receives property pursuant
to a section 351 exchange and, as part of the transaction,
another party to the transaction assumes a liability of the
taxpayer, the assumption of liability shall not be treated as the
receipt of money or property and shall not disqualify the
transaction for nonrecognition treatment under section 351. Sec.
357(a). The general rule of section 357(a) is subject to the two
exceptions set forth in section 357(b) and (c).
To paraphrase, section 357(b) provides that an assumption of
a taxpayer’s liability under section 357(a) shall be considered
money received by the taxpayer for purposes of section 351 if,
taking into consideration the nature of the liability and the
circumstances surrounding the arrangement, it appears the
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