Countryside Limited Partnership, CLP Holdings, Inc., Tax Matters Partner - Page 1

                                  T.C. Memo. 2008-3                                   

                               UNITED STATES TAX COURT                                

                COUNTRYSIDE LIMITED PARTNERSHIP, CLP HOLDINGS, INC.,                  
                         TAX MATTERS PARTNER, Petitioner v.                           
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 3162-05.              Filed January 2, 2008.                

                    CS, a limited partnership, owned real property R,                 
               which CS sold in April of year 2.  W and C were members                
               of CS.  In late year 1, CS redeemed W’s and C’s                        
               interests in CS by distributing to them its 99-percent                 
               interest in a (newly formed) L.L.C., CLPP, which held a                
               99-percent interest in a second (newly formed) L.L.C.,                 
               MP.  MP owned four privately issued promissory notes in                
               the aggregate principal amount of $11.9 million                        
               purchased with (1) an $8.55 million bank loan to CS,                   
               the proceeds of which were contributed by it to CLPP,                  
               which then contributed $8.5 million to MP, and (2) a                   
               $3.4 million bank loan directly to MP.  The notes were                 
               neither listed nor traded on an established financial                  
               market.  On the distribution to W and C, each was                      
               relieved of his share of CS’s liabilities, although                    
               each retained, indirectly, his share of MP’s                           
               liabilities.  W and C reported no recognized gain on                   
               account of the distribution.  CS elected to step up its                
               basis in R.                                                            
                    Respondent alleges:  (1) CLPP, MP, and all of the                 
               late year 1 transactions should be disregarded as                      

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Last modified: March 27, 2008