§721 — Nonrecognition of gain or loss on contribution

Treasury Regulation § 1.721-1(b)(1) states in part: To the extent that any of the partners gives up any part of his right to be repaid his contributions (as distinguished from a share in partnership profits) in favor of another partner as compensation for services (or in satisfaction of an obligation), section 721 does not apply.

Nonrecognition ofgain or loss on contribution.-- * * ·* * * * * (b)(1)* * * To the extent that any ofthe partners gives up any part ofhis rightto be repaid his contributions (as distinguished from a share in partnership profits) in favor ofanother partner as compensation for services * * * section 721 does not apply.

We do not agree with petitioner’s contention that Hawks Bluff reported the contribution as a sale.

Section 721 provides that "No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership." Respondent's reliance on section 731 is misplaced.

By contrast, the issue here is whether the nonrecognition provisions ofsection 721 apply to petitioners' payments to Desert Academy.

Claimed Application of Partnership Tax Rules Petitioner’s position is that when the banks contributed the high-basis, low-value properties (the receivables and SMHC stock) to SMP in exchange for preferred interests, the transaction was a nontaxable event under section 721; SMP received bases equal to the banks’ bases in the contributed properties.

l for $3.6 million, no part of the gain on which is allocable to him, and a distribution by Pecaris-- nontaxable to him under section 731--of a 25-percent undivided interest in the Mall, followed by his contribution--nontaxable to - 16 - him under section 721--to Coastal of that interest,11 with the remaining $500,000 of mortgage loan proceeds being used to discharge the portion of the transaction expenses and preexisting liabilities attributable to his 25-percent undivided interest received fro

-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

Respondent, relying on section 721, continues with the additional premise that the deemed recontribution of the partnership property to the new partnership is an exchange.

howing that respondent’s determination is in error and/or that the amounts in controversy were capital contributions. Rule 142(a). Petitioners assert that the conversion of the loan into a partnership capital interest is a nonrecognition event under section 721. Section 721 provides: "No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership." We must decide if the sub

These nonrecognition rules do not apply, however, where the transaction is found in substance to be a disguised sale of property. See Jacobson v. Commissioner, 96 T.C. 577 (1991), aff’d per curiam, 963 F.2d 218 (8th Cir. 1992). A disguised sale occurs where a partner contributes property to a partnership and receives a related distribut

-18- [*18] If we were to adopt respondent’s views of the receipt of the class C units entirely on the basis of the call option agreement between NPA, Inc., and ES NPA, one would question whether section 721 and its underlying regulations have any relevance to this case since under the call option agreement ES NPA did not transfer anything to IDS in exchange for the interest received in IDS.

Each trading company and main trust takes its own basis from [Lojas] Arapua[, S.A.] or Globex [Utilidades, S.A.] by carryoverunder Section 721 [sic 723] or Section 1015." The Court disagrees with petitioner that the partnerships may now recharacterize their transactions for Federal income tax purposes as mere agent-principal transactions to reflect the substance rather than the form ofthe transactions.

Section 752(a) provides that "[a]ny increase in a partner's share ofthe liabilities ofa partnership, or any increase in a partner's individual liabilities by reason ofthe assumption by such partner ofpartnership liabilities, shall be considered as a contribution of money by such partner to the partnership." The Christine Dynas

Section 752(a) provides that "[a]ny increase in a partner's share ofthe liabilities ofa partnership, or any increase in a partner's individual liabilities by reason ofthe assumption by such partner ofpartnership liabilities, shall be considered as a contribution of money by such partner to the partnership." The Christine Dynas

Each trading company and main trust takes its own basis from [Lojas] Arapua[, S.A.] or Globex [Utilidades, S.A.] by carryoverunder Section 721 [sic 723] or Section 1015." The Court disagrees with petitioner that the partnerships may now recharacterize their transactions for Federal income tax purposes as mere agent-principal transactions to reflect the substance rather than the form ofthe transactions.

that amount presumably constituted a contribution to the firm's capital and would increase his own capital account at the firm, see 26 C.F.R. sec. 1.704-1(b)(2)(iv)(b) and (c), Income Tax Regs., but such a capital contribution is not deductible, see sec. 721 (providing nonrecognition treatment for contributions to partnerships by partners); Lopo v. Commissioner, T.C. Memo. 1961-126, 20 T.C.M. (CCH) 620, 624 (1961) (holding that capital contributions tojoint ventures are not deductible business e

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

That regulation states that it applies to assumptions ofliabilities occurring "after October 18, 1999, and before June 24, 2003."¹² It provides that if, in a transaction described in section 721, a partnership assumes a liability (as defined in section 358(h)(3)) ofa partner (other than a liability to which section 752(a) and (b) apply), then, after application ofsection 752(a) and (b), the partner's basis in the partnership is reduced (but not below the adjusted value ofsuch interest) by the am

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

artnership for Federal income tax purposes for purposes ofservicing and collecting distressed consumerreceivables owed to the retailers; (2) whetherthe Brazilian retailers made valid contributions ofthe receivables to the purported partnership under section 721; (3) whetherthe retailers' claimed contributions to and subsequentredemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale ofthe receivables, such thatthe receivables had a cost basis under section 10

ership for Federal income tax purposes for purposes of servicing and collecting distressed consumer receivables owed to the retailers; (2) whether the Brazilian retailers made valid contributions of the receivables to the purported partnership under section 721; (3) whether the retailers’ claimed contributions to and subsequent redemptions from Sugarloaf should be collapsed into a single transaction and treated as a sale of the receivables, such that the receivables had a cost basis under sectio

-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri

-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri

-7- In Superior Trading I, we held that: (1) a bona fide partnership was never formed for Federal tax purposes between Arapua and Jetstream; (2) Arapua never made a valid contribution ofthe consumer receivables to the purported partnership under section 721; (3) these receivables should not receive carryoverbasis treatment under section 723; and (4) Arapua's claimed contribution and subsequent redemption from the purportedpartnership should be collapsed into a single transaction and recharacteri

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

retailer; (2) whether this Brazilian retailer made a valid contribution of the consumer receivables to the purported partnership under section 721;1 (3) whether these receivables should receive carryover basis treatment under section 723; (4) whether the Brazilian retailer's claimed contribution and subsequent redemption.from the purported partnership should be collapsed into a single transaction and recharacterized as a sale of the receivables; and (5) whether the section 6662 ac

23 - a quarterly investment advisory fee and a one-time, fixed $20,000 fee specifically for '2001 .37 When CF Advisors became a member in Palm Canyon, Palm Canyon became classified as a partnership for Federal income tax purposes .38 Accordingly, AHI,' ;which'until then had been the sole member of Palm Canyon, was-treated under section 721'as contributing all of the assets of the limited liability company, which on the date of' .the contribution consisted of $825,000`and the long MLD option, to.

iricreased`by the amount of any gain recognized-under'section 721'(b)'to the contributing partner at the'time of contribution .

tered into a transaction with its subsidiary, KTVU, :Inc ., to distribute partnership interests to the ;partners of KTVU''Partnership . To the extent KTVU, Inc . -contributed excess value, it is deemed to have receive d a partnership interest in the section 721 . contribution . Subsequently, KTVU, Inc . made a constructive distribution of a portion of the KTVU Partnership interest for the'!benefit ofjthe Shareholder Trusts, which triggered section 311(b) gain . In his accompanying memorandum of

Filed June 29, 2000. R’s notice of final partnership administrative adjustment (FPAA) treated 1990 transfers of business assets to P’s partnership as taxable sales by P rather than as nontaxable transfers in exchange for partnership interests under sec. 721, I.R.C. P, a partner other than the tax matters partner, filed the petition and then moved for summary judgment on the ground that the period of limitations for assessing any tax resulting from this partnership proceeding has expired. R alleg