Parker Properties Joint Venture, PDW&A, Inc., A Partner Other Than The Tax Matters Partner - Page 21

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          707(a), 721; Barenholtz v. Commissioner, 77 T.C. 85 (1981); Otey            
          v. Commissioner, 70 T.C. 312 (1978).                                        
               The partnerships paid $650,000 less than Commercial was                
          willing to accept.  Therefore, Riverbank (not a party in these              
          cases) purchased nearly $11.5 million mortgages for just over 5             
          percent, or $650,000, above their fair market value.  This                  
          enabled the partnerships to achieve debt relief from Commercial             
          and also provided Riverbank with new mortgages.  Parker                     
          Properties and Twenty Mile did not pay the $650,000.                        
               Both parties to the transaction had a business purpose for             
          its consummation; Commercial realized cash on the sale of the               
          mortgages, and Riverbank obtained assets.  As part of the                   
          purchase, Riverbank, not the partnerships, is entitled to account           
          for their acquisition.  Furthermore, if the conditions warranted,           
          Riverbank (not the partnerships) might be entitled to any                   
          potential bad debt deductions.  See generally sec. 166.  To hold            
          that the partnerships should reduce their cancellation of                   
          indebtedness income by the $650,000 another entity paid would               
          ignore the realities underlying the separate mortgage purchase              
          agreement and the practical effects of Riverbank’s separate role            
          as the buyer.  Accordingly, the partnerships are not entitled to            
          reduce their income by the $650,000 premium paid by Riverbank.              
               To reflect the foregoing,                                              







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