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activity” or economic substance will defeat the application of
the provisions of subchapter K. See, e.g., Wilkinson v.
Commissioner, 49 T.C. 4, 10-13 (1967) (in which we (1)
disregarded, as without “economic significance”, the assignment
of an installment sale obligation to a partnership owned by the
obligees just before the obligees’ liquidation of the corporate
obligor, in which they were majority shareholders, (2) deemed
section 721, which would have protected the obligees from tax on
the deferred gain upon a bona fide assignment of the obligation
to the partnership, to be inapplicable, and (3) held that the
obligees were taxable on the deferred gain upon their liquidation
of the corporate obligor); Santa Monica Pictures, L.L.C. v.
Commissioner, T.C. Memo. 2005-104 (special allocation rules of
section 704(c) and carryover basis rules of section 723 deemed
inapplicable to shift built-in losses to the taxpayer in a
transaction lacking economic substance). The question is whether
there are circumstances present in this case that negate the
application of sections 731(a)(1) and 752(a) and (b) to provide
nonrecognition of gain to Mr. Winn and Mr. Curtis on the
liquidating distribution.
3. Did the Transactions in Question Lack Economic
Substance?
a. Introduction
As noted supra, participating partner concedes that the
liquidating distribution was structured to defer tax by
distributing to Mr. Winn and Mr. Curtis property rather than cash
and that tax avoidance was the sole motivation for the formation
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