for example, say you bought a partnership investment and issued borrowed (the note) to pay for it. . so you have an investment with a tax basis of $X for which you owe $X (sort of like buying on margin). 5 years down the road the investment is sold for $X and the money is used to pay off the note. so you got no cash because the proceeds went to pay off the note. for tax purposes, you sold for $X and you had a tax basis of $X so there is no loss. The note does not figure into the gain or loss. of course, we really don't understand everything that took place. so if this isn't close to what happened, we'll need much more info.
