- 28 -
principal amount, with the result that Metals would have neither
gain nor loss on their redemption. The excess of the fair market
value of Metals' shares over that amount would be considered a
capital contribution by Metals to RMECC and an addition to
Metals' basis in its RMECC shares. Cf. Honeywell Inc. v.
Commissioner, supra at 641-642; see also Marathon Oil Co. v.
Commissioner, 838 F.2d 1114 (10th Cir. 1987), affg. Husky Oil Co.
v. Commissioner, 83 T.C. 717 (1984). That such value may not be
an item that can be reflected in the capital account of RMECC
does not negate the existence of a capital contribution.
Commissioner v. Fink, 483 U.S. 89, 97 (1987).
Petitioners insist that the conversions encompassed only a
single element, i.e., the acquisition of the debentures by
Metals, that the fair market value of Metals' shares represents
the cost of such acquisition and therefore the basis of the
debentures and that it is error to bifurcate that cost into
separate elements. The premise of petitioners' position, namely,
the presence of a single element, is erroneous. What is involved
herein is not a bifurcation of the cost of a single property; it
is the apportionment of a value among the elements acquired for
that value. Our approach is no different than what occurs, for
example, in the apportionment of a purchase price of a business
among the different assets, e.g., depreciable and nondepreciable,
or different benefits, e.g., business assets and a covenant not
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011