-
DONLON I DEVELOPMENT CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentDonlon I Dev. Corp. v. CommissionerDocket No. 102-91
United States Tax Court T.C. Memo 1993-374; 1993 Tax Ct. Memo LEXIS 400; 66 T.C.M. (CCH) 442;August 23, 1993, Filed*400 Decision will be entered under Rule 155.
For petitioner:Nancy L. Iredale andThomas S. Wisialowski .For respondent: Ursula P. Gee andGordon Gidlund .SCOTTSCOTTMEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT,
Judge : Respondent determined a deficiency in petitioner's Federal income tax and additions to tax under sections 6653(a) and 6661 $ 321,209Additions to Tax DeficiencySec. 6653(a)(1)(A)Sec. 6653(a)(1)(B)Sec. 6661$ 1,284,835$ 64,242 Some of the facts have been stipulated and are found accordingly.
1. Parcel A, which has 20 condominium units located in building A;
2. parcel B, which has 20 condominium units located in building B;
3. parcel C, which has 5 condominium units located in building C;
4. parcel D, which has 7 condominium units located in building D; and
5. parcel E, which has 19 condominium units located in building E.
On August 31, 1984, Donlon I conveyed parcels C, D, and E to Donlon II, a California corporation.
As of September 30, 1984, the construction of buildings A and B was nearly complete.
As of December 24, 1984, the construction of buildings C, D, and E was in progress.
The increase in the adjusted basis of the assets deemed sold as part*407 of the Donlon I election was calculated in the following manner. First, the price paid for the stock of Donlon I, $ 1,885,600, was added to the $ 1,843,894.56 of Donlon I's liabilities that were assumed. Then, there was subtracted from the total the amount of cash that Donlon I had on hand at the time of the Donlon I stock purchase, which amounted to $ 8,945.13. There was also subtracted from the total of the price paid for the Donlon I stock, plus the Donlon I liabilities assumed, an amount stated to be the adjusted basis of assets deemed sold which was computed as $ 2,975,474.54. *408 The increase in the adjusted basis of the assets deemed sold as part of the Donlon II election was calculated in the same manner as for Donlon I. First, the price paid for the stock of Donlon II, $ 2,350,000, was added to the $ 1,061,265.94 of Donlon II's liabilities that were assumed. From the total, the amount of cash that Donlon II possessed at the time of the Donlon II stock purchase ($ 1,383) was subtracted from the total of the two and a computed amount of adjusted basis of assets deemed sold, which amounted to $ 2,289,658.05, was also subtracted. *409 During the 1987 tax year, petitioner sold 20 of the condominium units (the units) to unrelated purchasers. The following schedule shows the units sold, the selling price of each unit sold, the construction cost of each unit sold, and the selling expenses of each unit sold.
Net Sales Construction Selling Total Unit Price Cost Expense Cost A2 $ 102,500 $ 80,655 ($ 24) $ 80,631 A5 109,440 58,677 6,372 65,049 B2 131,938 91,455 (24) 91,431 B8 95,000 64,962 (24) 64,938 B9 162,000 100,442 (24) 100,418 B10, B11 225,875 104,373 6,510 110,883 58,108 58,108 B12, B13 135,000 34,475 7,452 41,927 34,476 34,476 B18 106,400 88,956 (24) 88,932 C1, C3 600,000 187,747 32,488 220,235 276,542 276,542 D1 365,000 204,947 19,955 224,902 D3 106,745 61,316 6,232 67,548 E3 147,500 80,392 8,320 88,712 E4 211,000 107,636 11,852 119,488 E5 248,000 59,015 (100) 58,915 E6, E12 68,265 68,265 78,300 36,641 4,546 41,187 E17 105,000 56,900 3,287 60,187 Total 2,929,698 1,855,980 106,794 1,962,774 Unit Square Feet Amount A1 1,680 $ 67,797 A2 1,680 67,797 A3 1,920 77,482 A4 1,920 77,482 A5 1,920 77,482 A6 4,500 181,599 A7 1,114 44,956 A8 1,103 44,512 A9 1,100 44,391 A10 1,100 44,391 A11 1,999 80,670 A12 1,999 80,670 A13 1,138 45,924 A14 1,150 46,409 A15 1,373 55,408 A16 2,800 112,995 A17 2,000 80,711 A18 2,000 80,711 A19 2,400 96,853 A20 2,400 96,853 Total 37,296 1,505,093 Unit Square Feet Amount B1 2,400 $ 96,853 B2 2,400 96,853 B3 2,000 80,711 B4 2,000 80,711 B5 2,800 112,995 B6 1,373 55,408 B7 1,103 44,512 B8 1,103 44,512 B9 1,999 80,670 B10 1,999 80,670 B11 1,138 45,924 B12 1,100 44,391 B13 1,100 44,391 B14 1,150 46,409 B15 4,500 181,599 B16 2,160 87,167 B17 1,920 77,482 B18 1,920 77,482 B19 2,160 87,167 B20 2,160 87,167 Total 38,485 1,553,074 Total A and B 75,781 3,058,167 Unit Square Feet Amount C1 6,872 $ 170,332 C2 3,750 92,949 C3 10,122 250,887 C4 4,252 105,392 C5 863 21,391 D1 7,577 187,806 D2 8,822 218,665 D3 2,053 50,886 D4 2,944 72,971 D5 5,133 127,228 D6 7,266 180,098 D7 4,107 101,798 E1 3,060 75,846 E2 2,544 63,056 E3 2,400 50,487 E4 3,673 91,040 E5 1,148 28,455 E6 1,148 28,455 E7 1,328 32,916 E8 1,238 30,686 E9 1,238 30,686 E10 2,196 54,431 E11 2,196 54,431 E12 1,333 33,040 E13 1,333 33,040 E14 1,333 33,040 E15 3,040 75,351 E16 1,920 47,590 E17 1,920 47,590 E18 1,920 47,590 E19 1,920 47,590 Utility 256 6,345 Total 100,905 2,492,068 Original land cost $ 520,865 Construction costs & capitalized expenses 1,855,980 Selling expenses 106,794 Sec. 338 adjustment 565,319 3,048,958 On August 28, 1990, petitioner filed a Certificate of Election to Wind Up and Dissolve and a Certificate of Dissolution with the California secretary of state. Both certificates were stamped ENDORSED FILED by the California secretary of state on October 12, 1990, thereby legally dissolving petitioner. *413 in the property. Section 1001. *414 in an asset is section 338. Section 338
Prior to TEFRA and the enactment of section 334(b)(2), in certain situations where there was a purchase of stock followed by a prompt liquidation, case law allowed the transaction to be treated as an asset purchase. See
, affd. per curiamKimbell-Diamond Milling Co. v. Commissioner , 14 T.C. 74 (1950)187 F.2d 718">187 F.2d 718 (5th Cir. 1951); H. Conf. Rept. 97-760, at 535 (1982), 2 C.B. 600">1982-2 C.B. 600 , 631-632. Section 334(b)(2) was enacted as part of the Internal Revenue Code of 1954, ch. 736, 68A Stat. 3, 105. Section 334(b)(2) reflected the result in theKimbell-Diamond case. H. Rept. 1337, 83d Cong., 2d Sess. 38, A109 (1954); S. Rept. 1622, 83d Cong., 2d Sess. 48 (1954); *416 H. Conf. Rept. 2543, 83d Cong., 2d Sess. 36 (1954). According to section 334(b)(2), as in existence prior to TEFRA, *417 a continuation of the acquired corporation's tax attributes up to 5 years after a stock purchase while also treating the transaction as an asset purchase.Id. at 192. The provisions of section 338 were intended to remove this inconsistency.*418 When a section 338 election is made, the target corporation is treated as having sold "all of its assets at the close of the acquisition date at fair market value in a single transaction to which section 337 applies".
2 C.B. 600">1982-2 C.B. 600, 634 ; Staff of Joint Comm. on Taxation, General Explanation of the Revenue Provisions of the Tax Equity and Fiscal Responsibility Act of 1982, at 133 (J. Comm. Print 1982); see also Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders, par. 11.46.2, at 11-62 (5th ed. 1987).Since at the time of the section 338 elections no regulations existed as to how to allocate AGUB, petitioner attempted to use the regulations under section 334(b)(2). Section 338 does not require that the target corporation be liquidated and therefore adjusts the basis of the target's assets, whereas section 334(b)(2) applies only when the target corporation is liquidated and therefore deals with the basis of the assets to the purchasing corporation. According to the section 334(b)(2) regulations, the basis of the property received by a purchasing corporation in a liquidation of the target corporation is the purchasing corporation's adjusted basis in the target corporation's stock, with certain*422 adjustments.
Sec. 1.334-1(c), Income Tax Regs ; see also , 320 (1977), affd.R.M. Smith, Inc. v. Commissioner , 69 T.C. 317">69 T.C. 317591 F.2d 248">591 F.2d 248 (3d Cir. 1979). The purchasing corporation's adjusted basis in the target corporation's stock is reduced by the amount of cash and its equivalent received and increased by the amount of liabilities assumed during the liquidation. Sec. 1.334-1(c)(4)(v), Income Tax Regs. This basis is then allocated to the assets the acquiring corporation received in the liquidation (except cash and its equivalent) both tangible and intangible, ordinarily according to the relative fair market value of each such asset on the date received by the purchasing corporation to determine the basis of each asset received.Sec. 1.334-1(c)(4)(viii), Income Tax Regs. On January 29, 1986, the Secretary published section 1.338(b)-2T, Temporary Income Tax Regs.,
51 Fed. Reg. 3591 (Jan. 29, 1986), which deals with the allocation of AGUB. The preamble of the temporary regulations,51 Fed. Reg. 3583 , states that it applies to stock acquisitions made after August 31, 1982. *423Section 1.338-1T(c)(1), Temporary Income Tax Regs. ,51 Fed. Reg. 17929 (May 16, 1986), originally issued assection 5f.338-1, Temporary Income Tax Regs. ,47 Fed. Reg. 52433 (Nov. 22, 1982), extends the period for electing section 338 treatment until July 15, 1986, for any qualifying stock purchase that took place after August 31, 1982. See alsoAnnouncement 86-31 ,12 I.R.B. 25">1986-12 I.R.B. 25 (Mar. 24, 1986).The temporary regulations divide the assets of the target into four classes. Class I consists of such items as cash and demand deposits. Sec. 1.338(b)-2T(b)(1), Temporary Income Tax Regs.,
51 Fed. Reg. 3591 (Jan. 29, 1986). Class II is comprised of items such as certificates of deposit and U.S. Government securities. Sec. 1.338(b)-2T(b)(2)(ii), Temporary Income Tax Regs.,51 Fed. Reg. 3591 (Jan. 29, 1986). Class III includes the remaining assets, except for class IV assets. Sec. 1.338(b)-2T(b)(2)(iii), Temporary Income Tax Regs.,51 Fed. Reg. 3591 (Jan. 29, 1986). Class IV assets are intangible assets in the nature of*424 goodwill and going-concern value. Sec. 1.338(b)-2T(b)(2)(iv), Temporary Income Tax Regs.,51 Fed. Reg. 3591 (Jan. 29, 1986).According to section 1.338(b)-2T(b), Temporary Income Tax Regs.,
51 Fed. Reg. 3591 (Jan. 29, 1986), the general rule is that AGUB is first reduced by the amount of class I assets. The remaining amount of AGUB is allocated first to class II assets, then to class III assets, and finally to class IV assets. The allocation of the AGUB is based upon the ratio of the fair market value of each asset other than cash to total fair market value of all assets applied to the AGUB. Sec. 1.338(b)-2T(b)(2)(i), Temporary Income Tax Regs.,51 Fed. Reg. 3591 (Jan. 29, 1986). The amount of AGUB allocated to any asset, other than class IV assets, may not exceed the asset's fair market value as of the beginning of the day after the acquisition date. Sec. 1.338(b)-2T(c)(1), Temporary Income Tax Regs.,51 Fed. Reg. 3591 (Jan. 29, 1986).Thus, the approach under the section 334(b)(2) regulations for allocating basis to the various assets is very similar to the allocation*425 under the section 338 temporary regulations. The major difference is that under the section 338 temporary regulations assets received are divided into four stated categories, whereas under the section 334(b)(2) regulations, assets received were divided into two stated categories: Cash (or cash equivalents) and other assets. However, under both sets of regulations, the amount of cash is subtracted from the amount paid for the stock plus liabilities assumed in arriving at the amount to be allocated as the basis of the other assets. Under both regulations this amount is the basis of all other assets of the target corporation.
After examination of both sets of regulations, we conclude that the result obtained in the present case by a proper use of the section 334(b)(2) regulations would be the same as the result that would be obtained using the section 338 temporary regulations. Although respondent makes some argument that Donlon I and Donlon II each had some going-concern value to which a portion of the AGUB should be allocated, the evidence supports petitioner's position that there was no going-concern value. This in effect was the testimony of an officer of petitioner and petitioner's*426 expert witness. The nature of the operation, which was to build and sell specific condominiums, also supports this view. Therefore, the only assets of Donlon I and Donlon II at the time its stock was purchased and its liabilities assumed were cash, the land, and partially completed buildings. Under the section 338 regulations the cash is a class I asset, and the land and partially completed buildings are class III assets. Since there are no other assets, under either regulation, the allocation is the same.
Under either regulation it is necessary to decide the proper amount of the allocations of the AGUB to the land and to the buildings as well as to the individual condominium units. If we had a proper valuation of the partially constructed buildings as well as the land, we could make the allocation on the relative fair market values as the temporary regulations require. However, we do not have a valuation of the partially completed buildings.
To determine the fair market value of the assets of Donlon I and Donlon II, petitioner relies on the expert reports made in connection with obtaining construction loans. While the evidence is sufficient for us to accept the Epstein report*427 as showing the fair market value of the land and each report as showing the fair market value of the completed buildings as of the date of such report, completed buildings were not the assets held by Donlon I and Donlon II when the stock was purchased. The parties have stipulated that the Donlon I buildings were nearly complete and the Donlon II buildings were in the process of construction when the stock was purchased. There is no showing of how much remained to be done on the Donlon I buildings, and the inference is that much work remained to be done on the Donlon II buildings.
Therefore, if we accepted petitioner's contention that even though the Donlon I stock was purchased a year after the valuation date of the Epstein report and the Donlon II stock was purchased a few months prior to the valuation date of the Home Federal report, the values of the land as of the dates of the stock purchases were the same as shown in these reports, we would be unable to use the report's appraisals as to the buildings since they value completed buildings.
The parties are not in agreement as to when the purchase of the Donlon II stock took place. The parties stipulated that all the stock of*428 Donlon II was purchased on November 19, 1984. Although the agreement to purchase the Donlon II stock was entered into on November 19, 1984, the record is clear that the actual sale of the stock purchased by Simi was on December 24, 1984. Where, as here, a fact stipulated is clearly contrary to the facts in the record, we are not bound by the stipulation.
, 318 (1976); see also Rule 91(e). We therefore conclude that the purchase of the Donlon II stock took place on December 24, 1984.Jasionowski v. Commissioner , 66 T.C. 312">66 T.C. 312Since the stock purchases in this case are accepted by both parties as being arm's-length purchases, we conclude that the amount paid for the stock plus the liabilities assumed represent the fair market value of all the assets received. See
, 503 (1985), affd. without published opinionBanc One Corp. v. Commissioner , 84 T.C. 476">84 T.C. 476815 F.2d 75">815 F.2d 75 (6th Cir. 1987), pointing out that generally in an arm's-length purchase the purchase price can be assumed to be the fair market value of the assets acquired.We accept the $ 3.70-a-square-foot value of the land set forth in the Epstein*429 report. We also accept Mr. Epstein's expert testimony that the $ 3.70-a-square-foot land value had not appreciably changed from the date to which his report applied throughout the year 1984. We therefore conclude that the amount paid for the stock of Donlon I plus the liabilities assumed less the cash received less $ 3.70 a square foot for the land is the value at the date of purchase of the Donlon I stock, of the buildings in their incomplete state. This assumption is warranted since we have concluded that other than cash, the land and partially completed buildings were the only assets of Donlon I at the date of the purchase. We make the same assumption as to the Donlon II assets using for Donlon II also a land value of $ 3.70 a square foot.
However, petitioner did not merely allocate the AGUB consisting of the amount paid for the stock plus the liabilities assumed less the cash to the assets other than cash consisting of the land and partially completed building, but attempted to increase the amount by a so-called deemed gain. While the evidence does not explain the exact computation of this deemed gain, we would not accept the method as showing the basis of the assets of *430 Donlon I and Donlon II at the time the stock was purchased or the day following the purchases even if the computation had been explained. Section 338 states that the assets shall be deemed to have been purchased for an amount equal to "the grossed-up basis" of the purchasing corporation's "purchased stock". Sec. 338(b)(1)(A). This grossed-up basis is the amount paid for the stock plus the liabilities of the target corporation assumed in this case. Sec. 338(b)(2). Clearly from the statute, as well as the regulations under section 334(b) and the temporary regulations under section 338, the purchase price to be allocated among the assets other than cash in this case is the cost of the stock plus the liabilities assumed. The cash held by the target corporation is subtracted since cash requires no valuation. The remainder is allocated among the assets of the target corporation other than cash.
In our view also, it appears improper to allocate the land values on a basis of the square footage of the condominiums sold. The California statute with respect to condominiums *431 is a provision in the condominium agreement to the contrary. There is no showing in this record of any agreement with respect to ownership of land, and we therefore assume that the sale of each condominium unit carried an equal undivided interest in the land. The record here shows that the land parcel A on which building A was constructed contained 108,595 square feet, for which we have accepted a fair market value of $ 3.70 a square foot, making a total of $ 401,801.50 as the fair market value of the land on which building A was built. The record shows that building A contained 20 units, and on this basis, one-twentieth of the fair market value of the land should be allocated to each building A unit sold. The record shows that the parcel B land on which building B was built was 99,883 square feet, and based on $ 3.70 a square foot, the total value would be $ 369,567.10. Building B also contained 20 units, so each unit in building B which was sold should be allocated a fair market land value of one-twentieth of the $ 369,567.10.
Negligence is the failure to use due care or to do that which a reasonable and ordinarily prudent person would do in a similar situation.
925 F.2d 348">925 F.2d 348, 353 (9th Cir. 1991), affg.Allen v. Commissioner ,92 T.C. 1">92 T.C. 1 (1989). Petitioner has the burden of proving that the additions to tax under section 6653(a) do not apply. Rule 142(a); , 635 (9th Cir. 1984), affg.Hall v. Commissioner , 729 F.2d 632">729 F.2d 632T.C. Memo. 1982-337 .Based on this record, we conclude that the underpayment was not due to negligence, and therefore petitioner is not liable for the additions to tax under section 6653(a)(1)(A) and (B). There was enough uncertainty and confusion as to how to calculate and*436 allocate the AGUB under section 338 at the time of the election made by petitioner to justify a conclusion that petitioner's mistake was not due to negligence. See
, 1533 (1980);Yelencsics v. Commissioner , 74 T.C. 1513">74 T.C. 1513 , 1166-1167 (1945).Wofford v. Commissioner , 5 T.C. 1152">5 T.C. 1152The record indicates that petitioner's accountant, Mr. Hokyo, prepared schedules outlining the calculation of AGUB. Petitioner's 1987 tax return was prepared by Mr. Hokyo's accounting firm. In prior cases, we have held that reasonable reliance on experts for complicated problems suffices to avoid the addition to tax for negligence.
, 283 (1976);Industrial Valley Bank & Trust Co. v. Commissioner , 66 T.C. 272">66 T.C. 272 , 475 (1968);Conlorez Corp. v. Commissioner , 51 T.C. 467">51 T.C. 467 , 200 (1967).Woodbury v. Commissioner , 49 T.C. 180">49 T.C. 180Also, the fact that the regulations on AGUB had not been issued is important. Allocation of the AGUB is a complex matter, and petitioner had no guidance or clear references on how to properly calculate and allocate the AGUB. The fact that the*437 Commissioner has prevailed to some extent as to this issue does not require a conclusion of negligence or intentional disregard of the rules and regulations by petitioner. So, even though we have found a deficiency in petitioner's income tax for the 1987 tax year, we do not consider this deficiency to have resulted from negligence or intentional disregard of the rules and regulations. See
, 680 (1956). Under the circumstances, we conclude that petitioner is not liable for the additions to tax for negligence under section 6653(a).Moorman v. Commissioner , 26 T.C. 666">26 T.C. 666Section 6661(a) imposes an addition to tax equal to 25 percent of the amount of any underpayment attributable to a substantial understatement of income tax. An understatement is defined as the tax required to be shown on the return less the tax actually shown on the return, reduced by any rebates. Sec. 6661(b)(2). An understatement is substantial if it exceeds the greater of 10 percent of the tax required to be shown on the return or $ 10,000. Sec. 6661(b)(1).
However, section 6661(c) provides that the Secretary may waive all or part of the addition to tax under section 6661 if the*438 taxpayer shows (1) there was reasonable cause for the understatement, and (2) the taxpayer acted in good faith. The denial of a waiver by the Secretary is reviewable by this Court on an abuse-of-discretion basis.
, 1083 (1988).Mailman v. Commissioner , 91 T.C. 1079">91 T.C. 1079Reliance on the advice of a professional (such as an accountant or an attorney) constitutes a showing of reasonable cause and good faith under section 6661(c) if, "under all the circumstances, such reliance was reasonable and the taxpayer acted in good faith."
Sec. 1.6661-6(b), Income Tax Regs. An appeal in this case will be to the Court of Appeals for the Ninth Circuit. In (9th Cir. 1991), affg. in part and revg. in part an Oral Opinion of this Court, the Court of Appeals held that the Commissioner abused her discretion in failing to waive the addition to tax under section 6661 based on a record that showed the taxpayers acted as ordinary prudent persons and their reliance on the advice of their accountant was reasonable and in good faith. In this case, following the holding ofVorsheck v. Commissioner , 933 F.2d 757">933 F.2d 757 ,*439 we conclude that petitioner is not liable for the addition to tax under section 6661(a).Vorsheck v. Commissioner ,supra (1970), affd. on another issueGolsen v. Commissioner , 54 T.C. 742">54 T.C. 742445 F.2d 985">445 F.2d 985 (10th Cir. 1971). Decision will be entered under Rule 155.Footnotes
1. 50 percent of the interest due on the full deficiency.↩
2. The adjusted basis calculation is as follows:
↩ Building A $ 1,092,853.69 Building B 1,091,815.51 Land A 395,402.67 Land B 395,402.67 2,975,474.54 3. The adjusted basis calculation is as follows:
↩ Building C $ 298,202.82 Building D 489,552.96 Building E 542,912.76 Parcel C 214,909.55 Parcel D 352,812.24 Parcel E 391,267.72 2,289,658.05 1. Sold as one unit.↩
4. Respondent does not question that petitioner may properly prosecute this action. See Rule 60(c);
Cal. Corp. Code sec. 2010(a)↩ (West Supp. 1992).5. SEC. 1001. DETERMINATION OF AMOUNT OF AND RECOGNITION OF GAIN OR LOSS.
(a) Computation of Gain or Loss. -- The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.
* * *
(c) Recognition of Gain or Loss. -- Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.↩
6. SEC. 1011. ADJUSTED BASIS FOR DETERMINING GAIN OR LOSS.
(a) General Rule. -- The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter and subchapters C * * *, adjusted as provided in section 1016.↩
7. SEC. 338. CERTAIN STOCK PURCHASES TREATED AS ASSET ACQUISITIONS.
(a) General Rule. -- For purposes of this subtitle, if a purchasing corporation makes an election under this section * * *, then, in the case of any qualified stock purchase, the target corporation --
(1) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction to which section 337 applies, and
(2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date.
(b) Basis of Assets After Deemed Purchase. --
(1) In General. -- For purposes of subsection (a), the assets of the target corporation shall be treated as purchased for an amount equal to the sum of --
(A) the grossed-up basis of the purchasing corporation's recently purchased stock, and
(B) the basis of the purchasing corporation's nonrecently purchased stock.
(2) Adjustment for Liabilities and Other Relevant Items. -- The amount described in paragraph (1) shall be adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items.
* * *
(5) Allocation Among Assets. -- The amount determined under paragraphs (1) and (2) shall be allocated among the assets of the target corporation under regulations prescribed by the Secretary.
* * *
(g) Election. --
(1) When Made. -- Except as otherwise provided in regulations, an election under this section shall be made not later than the 15th day of the 9th month, beginning after the month in which the acquisition date occurs.
(2) Manner. -- An election by the purchasing corporation under this section shall be made in such manner as the Secretary shall by regulations prescribe.
(3) Election Irrevocable. -- An election by a purchasing corporation under this section, once made, shall be irrevocable.↩
8. SEC. 334. BASIS OF PROPERTY RECEIVED IN LIQUIDATIONS.
* * *
(b) Liquidation of Subsidiary. --
* * *
(2) Exception. -- If property is received by a corporation in a distribution in complete liquidation of another corporation * * *, and if --
(A) the distribution is pursuant to a plan of liquidation adopted not more than 2 years after the date of the transaction described in subparagraph (B) * * *; and
(B) stock of the distributing corporation possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote, and at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), was acquired by the distributee by purchase * * * during a 12-month period * * *
* * *
then the basis of the property in the hands of the distributee shall be the adjusted basis of the stock with respect to which the distribution was made. For purposes of the preceding sentence, under regulations prescribed by the Secretary, proper adjustment in the adjusted basis of any stock shall be made for any distribution made to the distributee with respect to such stock before the adoption of the plan of liquidation, for any money received, for any liabilities assumed or subject to which the property was received, and for other items.↩
9. Sec. 631 of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2269, amended secs. 337 and 338(a) so that sec. 337 is no longer applicable to a sec. 338 election. This amendment is applicable to sec. 338 transactions with an acquisition date after Dec. 31, 1986. Tax Reform Act of 1986, Pub. L. 99-514, sec. 633(a)(2), 100 Stat. 2085, 2277. Since the acquisition date in the present case was in 1984, the amendments to sec. 338 in the Tax Reform Act of 1986 are not applicable.↩
10.
Cal. Civ. Code sec. 1362 (West Supp. 1993) states:Sec. 1362 .Ownership of common areas .Unless the declaration otherwise provides, in a condominium project, or in a planned development in which the common areas are owned by the owners of the separate interests, the common areas are owned as tenants in common, in equal shares, one for each unit or lot.↩
11. See also
.Erhard v. Commissioner , T.C. Memo. 1992-376↩
Document Info
Docket Number: Docket No. 102-91
Citation Numbers: 66 T.C.M. 442, 1993 Tax Ct. Memo LEXIS 400, 1993 T.C. Memo. 374
Filed Date: 8/23/1993
Precedential Status: Non-Precedential
Modified Date: 11/20/2020