R. Edwin Brown and Winsome S. Brown - Page 11

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               In Tufts, the Supreme Court held that where a taxpayer                 
          disposes of property encumbered by nonrecourse indebtedness in an           
          amount that exceeds the fair market value of the property, the              
          outstanding amount of the nonrecourse obligation is includable in           
          the amount realized by him.  Moreover, the Supreme Court                    
               Unless the outstanding amount of the mortgage is deemed                
               to be realized [at the time of sale], the mortgagor                    
               effectively will have received untaxed income at the                   
               time the loan was extended and will have received an                   
               unwarranted increase in the basis of his property.                     
          * * *  [Id. at 310; fn. ref. omitted.]                                      
          “In so holding, the Supreme Court reaffirmed the Crane ‘balancing           
          entry’ theory which is that the amount of the nonrecourse                   
          liability is to be included in calculating both the basis and the           
          amount realized upon disposition.”  Rice’s Toyota World, Inc. v.            
          Commissioner, 81 T.C. 184, 196 n.9 (1983), affd. in part, revd.             
          in part and remanded 752 F.2d 89 (4th Cir. 1985).  This theory is           
          based upon the assumption that the mortgage was properly                    
          includable in basis from the beginning and that it will be repaid           
          in full.  Id.  Accordingly, we have concluded that Tufts involved           
          the symmetrical treatment to be accorded where nonrecourse                  
          liability has been properly included in basis initially and must            
          thereafter also be included in the amount realized on disposition           
          of the encumbered property.  Dean v. Commissioner, 83 T.C. 56, 78           
          n.10 (1984).                                                                

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