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in question were undertaken for a “substantial business purpose”;
i.e., to enable Mr. Winn and Mr. Curtis to withdraw their
investments in Countryside by exchanging their limited
partnership interests for the AIG notes. We have also found that
the transactions in question satisfied the second requirement;
i.e., that they not violate substance over form principles. Id.
Both in form and in substance, Mr. Winn and Mr. Curtis are deemed
to have exchanged interests in a real estate partnership for
promissory notes. Therefore, the remaining issue is whether the
transactions in question satisfy the third requirement; i.e.,
that the tax consequences under subchapter K clearly reflect
income and, if not, that the departure from that standard be
“clearly contemplated” by the applicable provisions of subchapter
K (in this case, sections 731(a)(1) and 752). Id.
Respondent, by attributing gain to Mr. Winn and Mr. Curtis
on the deemed receipt of the AIG notes in exchange for their
interests in Countryside, takes the position that their reporting
of no gain on that transaction did not clearly reflect their
income. Under section 1.701-2(b), Income Tax Regs., in cases in
which there is not a clear reflection of income, the Commissioner
may “recast the transaction for federal tax purposes” if the
partnership has been “formed or availed of in * * * a transaction
a principal purpose of which is to reduce substantially the
present value of the partners’ aggregate federal tax liability in
a manner that is inconsistent with the intent of subchapter K”.
Because we find that the transaction (1) was imbued with economic
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