Countryside Limited Partnership v. Commissioner
United States Tax Court
95 T.C.M. 1006 (2008)
Arthur Winn and Lawrence Curtis (collectively, the partners) (plaintiffs) held 95 percent of a real estate partnership (the partnership). After adjusting for liabilities, the partners had a zero basis in their partnership interests. The partners’ interests were liquidated and redeemed by the partnership, with the partnership issuing $12 million worth of private notes issued by AIG (the AIG notes). The AIG notes were not marketable securities, because they were not listed or traded on a financial market. The partnership hoped the redemption would qualify for nonrecognition under § 731(a) of the Internal Revenue Code based on the partners’ adjusted basis in the partnership. The Commissioner of Internal Revenue (the Commissioner) (defendant) argued the AIG notes were marketable securities under § 731(c), which would trigger tax liability for $12 million in gain. To support his argument, the Commissioner cited § 731(c)(2)(A), which explained that any financial instrument that was readily convertible into money or marketable securities would be considered a marketable security for the purposes of § 731(c). Further, the Commissioner cited Treasury Regulation 1.731-2(h) (the treasury regulation), which provided that the Commissioner may reclassify transactions that are intended to achieve tax results inconsistent with § 731(c). The treasury regulation provided three examples of transactions in which a partnership distributed rights to purportedly nonmarketable securities to avoid tax liabilities under § 731(c). Two of the examples involved distributions of partnership assets, excluding marketable securities, to partners, and the third involved a change in partnership allocations with respect to marketable securities. The partners petitioned the United States Tax Court for a redetermination, arguing that the AIG notes were not marketable securities and were not distributed as part of a tax-avoidance scheme.
Rule of Law
Holding and Reasoning (Halpern, J.)
What to do next…
Unlock this case brief with a free (no-commitment) trial membership of Quimbee.
You’ll be in good company: Quimbee is one of the most widely used and trusted sites for law students, serving more than 705,000 law students since 2011. Some law schools—such as Yale, Berkeley, and Northwestern—even subscribe directly to Quimbee for all their law students.Unlock this case briefRead our student testimonials
Learn more about Quimbee’s unique (and proven) approach to achieving great grades at law school.
Quimbee is a company hell-bent on one thing: helping you get an “A” in every course you take in law school, so you can graduate at the top of your class and get a high-paying law job. We’re not just a study aid for law students; we’re the study aid for law students.Learn about our approachRead more about Quimbee
Here's why 705,000 law students have relied on our case briefs:
- Written by law professors and practitioners, not other law students. 44,400 briefs, keyed to 983 casebooks. Top-notch customer support.
- The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
- Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
- Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.