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substance and (2) did, in fact, result in Mr. Winn’s and Mr.
Curtis’s receipt of nonmarketable securities, we find that their
reporting of no gain on the receipt of the AIG notes, pursuant to
section 731(a)(1), clearly reflected their income from that
transaction. Therefore, petitioner’s reporting of the
liquidating distribution as a distribution of property other than
money may not be “adjusted or modified” pursuant to section
1.701-2(b)(5), Income Tax Regs.29
2. Section 1.731-2(h), Income Tax Regs.
Participating partner argues, on the basis of the
illustrative examples contained in section 1.731-2(h), Income Tax
Regs., that “the provision should not have any application to a
partnership that owns no marketable securities at all, either
directly or indirectly”. Respondent describes that argument as
expressing “the untenable position” that section 1.731-2(h),
Income Tax Regs., does not apply “to situations where
partnerships create purportedly nonmarketable securities to
29 It may be that the totality of the actions taken by
Countryside, including the formation of CLPP and MP, the sec. 754
elections by Countryside and CLPP, and the absence of a sec. 754
election by MP, present grounds for concluding that there was not
a proper reflection of income thereby invoking the application of
sec. 1.701-2, Income Tax Regs. (and/or the economic substance
doctrine), in order to determine whether to deny a basis step-up
for Countryside’s assets (i.e., the Manchester property) and/or
either disregard CLPP and MP as sham entities or require a basis
step-down for the AIG notes held by MP. See sec. 1.701-2(d),
Example (8), Income Tax Regs. But the issues concerning
Countryside’s basis in the Manchester property or the holder’s
(or deemed holder’s) basis in the AIG notes pursuant to the
interaction among secs. 734(b), 743(b), and 754 are not germane
to the motion. Therefore, we do not address those issues.
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