- 40 -
including being a favorable candidate for acquisition
by a larger company or of becoming publicly traded and
expanding rapidly to meet increasing demand for jojoba
oil.
Berberich notified the limited partners of JDP and JDP-II of
Hyder Jojoba plantations' cash flow problems by letters dated
December 21, 1987, and February 10, 1988. In those letters he
endorsed Whittaker's plan to form a corporation that would
combine into one entity all of the entities then comprising the
Hyder Jojoba plantations. Subsequently, effective June 30, 1988,
the partners of JDP exchanged their partnership interests for
stock in a new corporation, HJI Holdings, Inc. (Holdings).
Petitioners accordingly became shareholders in Holdings. As a
result of the exchange, JDP realized ordinary income from
liabilities assumed on the exchange in the amount of $58,495,
which was reflected on its final partnership tax return, filed
for 1988. In connection with the creation of Holdings, the
partners of JDP and JDP-II were credited with raising capital of
$116,355.49 from sale of the assets of the partnerships and
additional contributions made by partners.13 As a part of the
reorganization, Holdings owns all of the land and assets that HJI
or entities affiliated with HJI had owned. Following the
reorganization, Holdings farmed approximately 1,300 acres of
jojoba in the Hyder Valley.
13 The record does not reveal whether any of the petitioners
made any additional capital contributions.
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