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Respondent relies upon (1) caselaw employing the so-called
economic substance doctrine and (2) the subchapter K “anti-abuse”
regulations (sections 1.701-2 and 1.731-2(h), Income Tax Regs.),
in order to deny the application of the provisions of subchapter
K and the regulations thereunder that are relied upon by
participating partner, despite literal compliance therewith.
Respondent’s argument that the post January 1, 2000, transactions
lacked “economic substance” is premised on the fact that, because
the interest rate on the CB&T loans to CLPP and MP was 230 basis
points higher than the rate of interest earned on the AIG notes
(the interest detriment), those transactions made “no economic
sense”.
Respondent also opposes the motion on the ground that there
are material issues of fact regarding the true nature of the
economic arrangement among the partners in Countryside and the
circumstances surrounding the sale of the Manchester property to
Stone Ends. He also alleges that there are material issues of
fact regarding the marketability of the AIG notes, i.e., whether
there existed an “arrangement” with AIG whereby the notes were
“readily convertible” into cash, see sec. 731(c)(2)(B)(ii), and
whether CLPP and MP should be disregarded for Federal income tax
14(...continued)
$3.4 million MP borrowed from CB&T because, as she explained,
that part of the transaction is “more abusive”. She stated:
“Well, the 3.4 is worse than the 8.5 because the 3.4 is down in
Manchester, [it is] associated with a note that is pledged to the
bank * * *, the interest differential is * * * [against the
partnership], and that’s basically all that is in that
partnership.”
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Last modified: March 27, 2008