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liabilities assumed exceeds the total of the adjusted basis of
the property transferred pursuant to the exchange, then the
excess is treated as gain from the sale of a capital or
noncapital asset, as the case may be. Considering all the
circumstances, we conclude, as an alternative to our analysis
under section 357(b), that the grantor trusts’ transfer of the
eight notes receivable to Cashmere is not entitled to be
respected for purposes of applying section 357(c).
Cashmere was, at best, a passive investment vehicle as
opposed to an operating business, and in this light the transfer
of the notes receivable to Cashmere served no business purpose
independent of the tax benefits Kanter hoped to reap. The eight
notes receivable in question (1) were either payable by Kanter
individually or by entities he controlled, (2) reflected a total
principal amount approximately equal to the aggregate negative
capital accounts of the partnership interests in question, (3)
were all dated May 1, 1983, and payable on August 31, 1983, and
(4) were all repaid with funds from a TACI account. There is no
discernible paper trail evidencing the source of the TACI funds.
In the end, the cash paid to Cashmere/Waco on the notes
receivable was returned to Kanter (indirectly) in the form of a
portion of the cash payment Equity made to Waco for Cashmere’s
stock.
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