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without economic substance and there was, in substance,
a cash distribution of over $11 million from CS to W
and C or, alternatively, a distribution of “marketable
securities”, as defined in sec. 731(c)(2), I.R.C., that
constituted money for purposes of sec. 731(a)(1),
I.R.C., and (2) CS is not entitled to step up its basis
in R.
W (a participating partner) moves for partial
summary judgment on the issue of whether he and C are
required to recognize gain on the year 1 distribution
to them (i.e., whether they are deemed to have received
money), and he concedes, for purposes of the motion,
that CLPP and MP may be disregarded, which results in a
deemed distribution of the notes from CS to W and C.
The issue for decision is whether the deemed
distribution of the notes from CS to W and C
constituted, in substance, a distribution of cash or,
alternatively, of “marketable securities”.
1. Held: Because the deemed distribution of the
notes to W and C (1) accomplished a legitimate business
purpose (to enable W and C to convert their shares of
CS’s equity in property R into interest-bearing
promissory notes) and (2) resulted in a change in their
economic position, the transactions which enabled them
to accomplish that result in a tax efficient manner may
not be disregarded for lack of economic substance.
2. Held, further, respondent has failed to
demonstrate that there is a genuine issue of material
fact regarding the status of the notes as nonmarketable
securities.
3. Held, further, CS’s deemed distribution of the
notes to W and C resulted in nonrecognition of gain to
them under secs. 731(a)(1) and 752, I.R.C.
Richard A. Levine and Elliot Pisem, for petitioner and
participating partner.
Jill A. Frisch, Barry J. Laterman, and Elizabeth P. Flores,
for respondent.
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Last modified: March 27, 2008