In 20Y1, Ms. Graves transferred appreciated property to KL Partnership in exchange for an ownership interest in the partnership. She deliberately waited until 20Y3 before taking cash out of the partnership. Ms. Graves may have been trying to prevent the IRS from applying the:

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Ms. Graves may have been trying to prevent the IRS from applying the Step transaction doctrine, which could treat her series of separate transactions (transferring appreciated property to the partnership and later taking cash out) as a single transaction if they were intended to achieve an end result that could have tax avoidance implications. This doctrine looks at the interconnectedness of transactions to determine their true substance.