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OPINION
Positions of the Parties
Petitioners contend that the sale of the Escondido property to
Balmac was a fiction and that it was in essence part of a financing
transaction. They maintain that the $950,000 deposited by Balmac
with WTC was never intended to be for the benefit of petitioner or
distributed to him. According to petitioners, the loan from the
bank (purportedly for the purchase of the Escondido property) was
in reality a loan to the joint venture (which then lent the
proceeds to BTG, which in turn lent the proceeds to petitioner).
Petitioners request that we find, as an ultimate fact, that
petitioner "received no net proceeds from the sale of any portion
of the Escondido property in 1985 or 1986" and that petitioner
"received no compensation or other consideration in exchange for
the $5 million deed of trust."
Petitioners' version of events is that petitioner transferred
44.25 acres of the Escondido property to BTG in exchange for stock
and caused the remaining 41.75 acres to be deeded to Balmac as
nominee for petitioner. Accordingly, petitioners characterized the
transfers as tax-free exchanges under section 351.4 They contend
4 Sec. 351(a) provides:
SEC. 351(a). General Rule.--No gain or loss shall be
recognized if property is transferred to a corporation by
one or more persons solely in exchange for stock or
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