T.C. Memo. 1996-191
UNITED STATES TAX COURT
DONALD J. AND JUDITH E. PERACCHI, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22511-93. Filed April 22, 1996.
Ps contributed three parcels of real property and
their unsecured promissory note to their wholly owned
corporation. The parcels were encumbered by deeds of
trust securing debt obligations in amounts that were in
excess of the combined adjusted basis of the parcels in
the hands of Ps. The face amount of Ps' promissory
note was greater than the excess of the encumbering
liabilities over Ps adjusted basis in the properties.
Held: Ps failed to carry their burden of proving that
their unsecured promissory note constituted genuine
indebtedness. Under sec. 357(c)(1), I.R.C., Ps are
required to recognize gain measured by the excess of
the debt obligations secured by deeds of trust over Ps'
adjusted basis in the real property.
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