Don Ballantyne and Susanne C. Ballantyne - Page 16

               We accept the structure of the transaction as cast by                  
          petitioners.  The substance of the transfer of the Escondido                
          property from petitioner to Balmac comports with the form of a sale         
          transaction.  Consequently, we sustain respondent's determination           
          that petitioner sold the Escondido property to Balmac.                      
               Having determined that a sale occurred, we turn to the tax             
          consequences flowing from petitioner's sale to Balmac.  The                 
          purchase price for the Escondido property was $7 million.  At               
          closing Balmac paid $2 million in cash and gave a $5 million                
          installment note.  Security for the note was reconveyed to Balmac           
          in 1986, and there is no evidence that any obligation to pay the            
          note remained. The reconveyance of the note amounts to a                    
          cancellation of the note.  The cancellation requires recognition            
          of gain of $4,121,930 under section 453B(a) and (f) in 1986.5               

               5    Sec. 453B(a) provides in part:                                    
                    SEC. 453B(a). General Rule.--If an installment                    
               obligation is satisfied at other than its face value or                
               distributed, transmitted, sold, or otherwise disposed                  
               of, gain or loss shall result to the extent of the                     
               difference between the basis of the obligation and--                   
                         *    *    *    *    *    *    *                              
                         (2) the fair market value of the                             
                    obligation at the time of distribution,                           
                    transmission, or disposition, in the case of                      
                    the distribution, transmission, or                                
                    disposition otherwise than by sale or                             
               Sec. 453B(f) provides:                                                 

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