- 23 - Petitioners argue that those security interests provide them with an ownership interest in the vending machines. Generally, a security interest is not equivalent to a capital investment. Helvering v. F. & R. Lazarus & Co., supra; see Cal. Com. Code sec. 1201(37)(a). The security interests provided petitioners with an interest in property designed to secure the payment or performance of an obligation. A security interest does not, without further action, transfer title or an ownership interest in property. Moreover, the assignment or release of a security interest eliminates the secured party's ability (in this case the financial institutions) to take possession of the property in the event of default. Additionally, a security interest is not the equivalent of “cash or other property” used to acquire the property.12 See sec. 1.1012-1(a), Income Tax Regs. The transfer of the Crestwood property to Prudential Bancorp pursuant to the settlement agreement did not create a capital investment in the vending machines. Instead, it resulted in an exchange or sale of that property, as discussed infra pp. 30-33. Prudential Bancorp received the Crestwood property in exchange 11(...continued) agreements, petitioners provided property or funds in exchange for the assignment of security interests in the vending machines. 12 This would be so even though, as part of the settlement agreements in which petitioners received assignment of the security interests, they did give cash or property to the financial institutions.Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Next
Last modified: May 25, 2011