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On or near May 15, 1990, Commercial filed a Form 1120X,
"Amended U.S. Corporation Income Tax Return", for the taxable
year ended June 30, 1988, in order to exclude some previously
taxed dividends. When respondent examined the claim reported in
the amended return, Commercial agreed to include ESL's share of
cancellation of indebtedness income attributable to its interests
in the joint ventures which had not been included in ESL’s tax
returns. Finally, Commercial agreed to an ordinary income
adjustment to restore ESL's negative capital accounts in the
joint venture partnerships to zero, and Commercial was allowed
capital loss treatment for the sale of the interests.
ULTIMATE FINDINGS OF FACT
Parker Properties’ and Twenty Mile’s agreement with
Commercial resulted in cancellation of indebtedness income.
OPINION
The partnerships obtained financing from Empire.
Subsequently, Empire’s successor in interest, Commercial, decided
to disassociate itself from the partnerships. Commercial and the
partners, after negotiations, reached an agreement. Respondent
and petitioners disagree as to the effect of the agreement on the
partners’ Federal income tax.
Respondent determined that Parker Properties and Twenty Mile
received $3,419,963 and $1,395,492 in income in 1988 from the
cancellation of indebtedness, respectively. Petitioners argue
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