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statements for January 1 through September 30, 1984, were
reviewed. The financial statements reflected that the
partnerships were being allocated income and expenses from the
subject condominiums beginning on January 1, 1984.
The partnerships' 1984 Federal income tax returns reported
interest deductions under section 483. The parties agree that,
if petitioners are successful, the method used by the
partnerships to report the interest deductions was correct. If,
however, respondent is successful, the method for reporting the
partnerships' interest deductions should have been in accordance
with section 1.446-2, Proposed Income Tax Regs., 51 Fed. Reg.
12031 (Apr. 8, 1986).
Midway through 1985, the partnerships defaulted on the debt
obligations to Western Savings. During September 1985 the
partnerships voluntarily transferred the condominium units to a
third party, subject to the installment obligation due Western
Savings in 2013. The note underlying that installment was to be
subordinated to any promissory note or lien securing the loan
taken out to pay the first installment. The partnerships' 1985
Federal tax returns reflected losses from the disposition of the
condominiums.
The fair market value of each condominium, as of December
1983, was equal to the downpayment plus the present value of the
purchase price installments (determined pursuant to section
1.483-1(g)(1), Income Tax Regs.).
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