- 17 - "interest" for a relatively nominal sum ($10,000) shortly after the questioned transaction. The substance of this transaction was separation from the joint ventures, and this was inconsistent with a capital contribution. By issuing Forms 1099-A and reporting income from the cancellation of indebtedness, Commercial and ESL treated the arrangement as a cessation of their interest and cancellation of indebtedness. The June 20, 1988, draft agreement contains the statement that the parties desired the cancellation of the partnerships’ indebtedness. It was not until 8 days later, i.e., after tax advice was obtained and the final agreement prepared, that any mention of a contribution to capital occurred. This is illustrative of the plan--Commercial wanted out of its creditor status; any purported capital contribution was a mere provision that was not otherwise in sync with the plan. Petitioners did not enter into the Agreement to increase or expand their capital structure. Cf. Perlman v. Commissioner, 27 T.C. 755, 758 (1957), affd. 252 F.2d 890 (2d Cir. 1958). Commercial’s accountant, in his June 28, 1988, memorandum, suggests the true nature of the transaction. Notwithstanding the fact that tax advice was sought, Commercial’s accountant was asked to review the draft agreement, the terms of which were incorporated into the final agreement. Based on his independent review, the accountant concluded that the draft agreement wasPage: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
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