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a.No b/c the book/tax disparity is corrected on liquidation2.But, the allocation may be respected b/c it’s not based on tax-avoidance motivationsIV.Mixing Bowl Transactionsa.Distributions of Contributed Property to Another Partneri.Contributing Partner1.Gain/Loss Recognition.If contributed property is distributed to another partner w/in 7 years of contribution, contributing partner is treated as recognizing gain/loss under § 704(c)(1)(A) if property had been sold for FMV. § 704(c)(1)(B)(i).2.Character of Gain/Loss.If contributed property is distributed to another partner w/in 7 years of contribution, the character of the gain/loss is the character of gain/loss that results if the property was sold by the p’ship to the distributee. § 704(c)(1)(B)(ii).a.Partnership Level.Character of gain/loss is determined at the p’ship level. § 702(b).3.Basis in Contributing Partner’s Interest in the Partnership.If contributed property is distributed to another partner w/in 7 years of contribution, contributing partner’s basis in his interest in the p’ship is adjusted to reflect any gain/loss recognized. § 704(c)(1)(B)(iii).ii.Distributee Partner.See II. Consequences to the Distributee Partner, supra.1.Nonrecognition.Generally, in distributions by a p’ship to a partner, gain/loss is not recognized. § 731(a)(1).a.Exception: Distribution of Money.Gain or loss is recognizedto the extent that any money distributed exceeds the AB of the partner’s interest in the p’ship immediately before distribution. § 731(a)(1).108
b.Exception: Distribution of Other Property to Contributing Partner.See IV.b. Distributions of Other Property to the Contributing Partner, infra.2.Basis in Distributed Property.The basis of property (other than money) distributed by a p’ship to a partner (in operating distribution) is its AB to the p’shipimmediately before such distribution. § 732(a)(1).a.Adjust Basis Before Distribution.Adjustments to the basis of a partner’s interest the partnership are made before the distribution. § 704(c)(1)(B)(iii).3.Basis in Partnership Interest.For operating distributions, the AB of a partner’s interest in the p’ship is reduced (but not below zero)by—a.(1) money distributed to the partner, andb.(2) AB to such partnerof distributed property other than money. § 733.b.Distributions of Other Property to the Contributing Partneri.Gain/Loss Recognition. In the case of any distribution by a p’ship to a partner, such partner is treated as recognizing gainin an amount equal to the lesser of—1.(1) the excess of (A) FMV of property distributed over (B) AB of partner’s interest in the p’ship, OR2.(2) the net pre-contribution gain of partner. § 737(a).a.Net Precontribution Gain.“Net precontribution gain” means any gain the distributee partner would have recognized under § 704(c)(1)(B) if all the property he contributed w/in 7 years of the distribution was distributed to another partner. § 737(b).ii.Character of Gain/Loss.The character of such gain is determined by reference to the proportionate character of the net precontribution gain. § 737(a) (flush language).iii.