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Disguised Sales in Partnership Transactions

August 09, 2022

A disguised sale occurs when a partner intentionally "contributes" property with a built-in gain to a partnership and immediately, or shortly thereafter, receives a related "distribution." While a contribution and distribution would normally be tax-free for the partner and the partnership, in some situations the transaction may be “collapsed” and treated as taxable to avoid the intentional evasion of tax.

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