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the Kligfelds for their 2000 taxable year. Both notices were a
result of the Commissioner’s determination that Kligfeld should
have taken the short sale obligation into consideration when
determining outside basis in Holdings 1. Accordingly, Kligfeld
(and Corporation after him) should have had a much lower outside
basis, with the following results: Holdings 2 shouldn’t have
been able to adjust the Inktomi stock’s inside basis under
section 754; the later distribution of cash to Corporation
exceeded Corporation’s much-reduced outside basis and should have
been treated, at least in part, as a capital gain; and, finally,
the stock distributed to Corporation should have had a basis of
zero since Corporation no longer had any outside basis once the
cash was distributed. As a result, the deficiency notice to the
Kligfelds showed an increase in capital gain of more than $9.8
million.
Holdings 2 timely filed a petition with this Court to review
the FPAA, and the Kligfelds timely filed a petition challenging
the notice of deficiency. Kligfeld, as a representative of
Corporation and on behalf of Holdings 2, moved for summary
judgment in the partnership case. He argues that the
Commissioner acted too slowly: the FPAA for the 1999 taxable
year was issued more than three years after Holdings 2 filed its
1999 return. The Commissioner argues in reply that because the
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Last modified: November 10, 2007