-14-
that BTG subsequently contributed the 44.25 acres to the joint
venture. In the alternative, petitioners contend that some or all
of the Escondido property was contributed to Balmac as a capital
contribution (which would also constitute a tax-free exchange).
In contrast, respondent argues that "the purported section 351
exchange asserted by petitioner [is] nothing more than an attempt,
engaged in subsequent to the completion of the Balmac transfer, to
recast the form of the sale transaction to obtain a more favorable
tax consequence." Respondent maintains that the transfer by
petitioner to Balmac of the Escondido property on July 31, 1985,
should be characterized as a sale and that in 1985 petitioner
incurred a long-term capital gain in the amount of $1,648,722 (as
a result of receiving $2 million in cash) and that in 1986
petitioner incurred a long-term capital gain in the amount of
$4,121,930 (as a result of the cancellation of the $5 million
installment note received in connection with the sale).
Balmac Contract
The structure of the transaction in this case is unmistakable.
All the documents and objective evidence support characterizing the
transfer of the Escondido property from petitioner to Balmac as a
sale. The purchase agreement provided for the purchase of the
Escondido property by Balmac from petitioner for $7 million.
4(...continued)
securities in such corporation and immediately after the
exchange such person or persons are in control (as defined
in section 368(c)) of the corporation.
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