Kligfeld Holdings, Kligfeld Corporation, Tax Matters Partner - Page 10
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Inktomi stock to its partners.14 The distributed cash was
treated as a return of capital (i.e., not taxable) since it
didn’t reduce the outside basis below zero--any cash distributed
which exceeded outside basis would be considered a capital gain.
Sec. 731(a). The remaining Inktomi stock that was distributed
retained its inside basis in the hands of the partners to the
extent of the partners’ remaining outside basis after that basis
was reduced by the amount of the cash distribution. Sec. 732.
To reflect the above transactions, each entity filed a tax
return: Holdings 1 filed a partnership return for its brief 1999
taxable year (September 20, 1999-November 15, 1999) on July 17,
2000. It listed the short sale of the U.S. Treasury notes and
claimed sale proceeds of $9,938,281, a basis of $9,965,625, and a
resulting loss of $27,344.15 Holdings 2 also filed a partnership
return for its short 1999 taxable year (November 15, 1999-
December 31, 1999) on July 17, 2000, reporting $10,000,004 in
proceeds from the sale of Inktomi stock and a gain of $523,337.
The Kligfelds filed a joint return for 1999 on August 15, 2000,
14 The record doesn’t show precisely how many shares of
Inktomi stock were distributed, but Corporation sold 12,000 of
the shares it received in November 2000 and distributed all of
the cash plus all remaining corporate property to Kligfeld.
15 The basis listed is the price paid for the replacement
securities. In a regular sale, the securities are first paid for
and then sold, with the gain or loss equaling the difference
between the purchase and sale price. In a short sale, the timing
is backwards--the sale price is determined before the purchase
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Last modified: November 10, 2007