Charles R. Bowden and Sue I. Bowden - Page 34

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            derived from the total of all claims paid by Prudential Bancorp                            
            in the settlement agreement, rather than the ultimate sale price                           
            to third parties.18                                                                        
                  Generally, a transfer of property by a debtor to a creditor                          
            in satisfaction, in whole or in part, of an indebtedness                                   
            constitutes a “sale or exchange” under section 1001, and the                               
            excess of the fair market value over the basis of the property                             
            applied against the indebtedness constitutes taxable gain.  Gehl                           
            v. Commissioner, 102 T.C. 784, 786 (1994), affd. without                                   
            published opinion 50 F.3d 12 (8th Cir. 1995); Allan v.                                     
            Commissioner, 86 T.C. 655, 659-660 (1986), affd. 856 F.2d 1169,                            
            1172 (8th Cir. 1988); Freeland v. Commissioner, 74 T.C. 970                                
            (1980).  The sale price represents the fair market value of the                            
            property at the time of sale.  Sec. 1.1001-1(a), Income Tax Regs.                          
                  Petitioners, on brief, argue that they understated the cost                          
            basis reported on their return because they calculated the                                 
            Concordia Bank loan as $1 million instead of $1,400,000.                                   
            Petitioners contend that the addition of the omitted amount                                
            brings the cost basis to $2,186,000.  Petitioners also contend                             


                  18 It is not likely that the total of all debts settled with                         
            Prudential Bancorp approximated $1.8 million.  That is so because                          
            the minimum amount of debt on the Crestwood property, as                                   
            contended by respondent, is $1.75 million.  In addition to the                             
            debt outstanding on the Crestwood property, petitioners settled                            
            their obligations relating to the corporate debt.  It is likely                            
            that the total or overall amount of debt settled exceeded the                              
            eventual sale price of the Crestwood property, or $2,525,000.                              




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